Following up on this morning’s analysis of structural changes in the automobile markets globally, we see the same structural observations in the labor markets. If there does exist a strong relationship between household income and auto demand, and it is pretty clear that one does, what we find in employment trends is unsurprising.
The latest jobs report, including revisions to previous months, has sustained and promoted this idea that the economy is on some sort of growth trajectory. Considering the taper talk and how it is supposed to relate to jobs, explicitly linked by Bernanke’s “rule” regarding labor improvement, what we find in both employment and autos would be hard pressed to be meaningfully construed as sufficient economic “progress”. The ultimate purpose of monetary policy is after all, to the chagrin of too many, not stock prices.
Again, there is far too much focus on the month-to-month bean count of exactly how many jobs were created. A broader assessment of labor conditions finds much less support for tapering optimism. The latest JOLTS survey from the BLS, for example, was both positive and negative from a narrow month-to-month standpoint. However, when viewed in the context of the official estimation of the labor force, it illuminates exactly the kind of struggles seen in so many other economic data points.
What clearly stands out, just like auto sales, is a structural shift in both job openings and hiring activity. This also explains rather fully why labor participation rates continue to decline. There simply are not enough hires for the “official” labor force to absorb new entrants to any great degree.
The limited ability of the current employment market, even in this quantitative rather than qualitative view, to move past just labor force growth suggests that businesses are not as optimistic as economists. While the rate of job openings exhibit much more of an upward bias, that is true of the housing bubble coming out of the 2001 recession as well.
In fact, we see exactly the same pattern in the latter stages of that artificial recovery (as well as the dot-com bubble) – where the rise in job openings is not matched by new hiring.
Companies continue to advertise new positions but are increasingly careful about filling them. That is an indication of business attitudes and perceptions about the need to control costs, especially labor costs. In this respect, job openings is a lagging indication for both the peak and trough of the economic cycle.
When viewed through that lens, the last year or so has been particularly disappointing. The rate of hiring has actually stagnated to slightly decreased (exactly like it did in 2006-07). The timing of this coincides with the drastic shift in nearly every other economic data series, from manufacturing to retail sales to corporate revenue and earnings.
What we have, then, is both a structural shift in the labor markets that is occurring against what appears to be a cyclical turning or inflection. On the surface, this appears like an economy “stuck in neutral” or in stasis, but in fact there is much more to it.
New debt will not solve the structural issues of dispersing new “money” into spending activity. There is no channel or efficient enough mechanism for it – housing is dead as a means to widely supplement household income despite its recent investment mania and foreclosure halt. Stock prices have risen concurrent to monetary prodding, but that is again a limited means to create durable and true “wealth” (stock prices are not wealth).
What these create instead is a bifurcated economy that will eventually succumb to economic gravity and reality. There is no durable wealth effect; the misfiring/structurally deficient labor and related markets will (to some degree already have) overwhelm the “good” segments. That is why the recovery has been deficiently miniature at best; only certain parts are responding to intervention.
Taper or not, the best days of this recovery are behind, as sad a commentary as there can be, but utterly poignant to the wider economic problems that still remain. That is also why despite four years and trillions of dollars, euros and yen, only stock and bond prices have so responded as the outlets for intentional monetary inflation.
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