Since January, we are supposed to believe that the jobs market is recovering when the official labor force contracts by 168,000 persons? I cannot think of any economic reality where that incongruity can be resolved outside of a central planning paradise. What that means, strictly according to the numbers, is that the civilian non-institutional population rose by just shy of 1.3 million while those “not in the labor force” rose more, by 1.47 million.
By any conventional and logical sense of economic health, employment should be outpacing population growth and not by a small amount, particularly coming on the heels of a drastic recession; except that this really is not “on the heels of recession”, it is four full years hence. The only way such an outcome makes sense is in the context of renewed decline, however that should be defined (dislocation, recession, paradigm shift? They all apply here).
I touched on one significant reason for the official figures to be so incurious about this still-growing dichotomy this morning, now it’s time for the details.
There is little precedence for the unemployment rate to be so “good” based solely on the denominator. Perhaps because we have never encountered such dysfunction that mainstream economics simply ignores it. That is standard procedure for any economic “variable” that does not easily fall in line of econometrics. If it’s hard to model because of a lack of precedent, it doesn’t exist.
The real problem stretches back to October of last year, exactly when GDP suddenly and “unexpectedly” dropped below stall speed and has largely remained there (full revisions notwithstanding). The Establishment Survey says conditions have improved, and have been extrapolated backward to QE 3 & 4, but every other indication disagrees.
Going back to October, even if we use the Establishment Survey as a benchmark, there have still been fewer new jobs than people conspicuously not joining the labor force. So even if we set aside this massive disparity with the Household Survey, the “preferred” employment measure has not been able to even match population growth. Yet, for obvious reasons, it is being used as the primary benchmark (in some cases the only) for not just policy evaluation but mainstream economic forecasting.
To go almost a full calendar year without an increase in the labor force is absolutely astounding, particularly since the labor force, by design of the labor surveys, is self-selection. The BLS may set the arbitrary criteria, but in a truly growing economy there would be little doubt about the direction.
The lack of growth in the labor force has now extended seven consecutive months. Outside of recession or immediate recovery, there have only been three instances of such low growth. Each of them were very brief by comparison (2004: 3 months; 1995-96: 2 months; 1983: 1 month that could be considered immediate aftermath of the 1981-82 double dip), amounting to no more than a temporary anomaly. Unfortunately, where it seemed like there was finally some modest labor progress heading into 2012 (lagging the rest of the economy) it disappeared exactly when the Establishment Survey said opposite.
Finally, as usual, income growth was less than tepid. In fact, the lack of change in the income averages is actually atypical.
The steady state of the moving averages is due to unusually wild swings in income measurements. This sawtooth pattern is consistent with a change in state – in this case as neither businesses nor those lucky enough to be employed can make out which direction to go.
Such uncertainty is, again, not something you would expect to find in a robust economic system. These atypical conditions speak to the structural adjustments that are still working through the economy, purging the remnants of the last artificial growth period (housing bubble) set against policy that seeks to recreate it. However, where policy influences expectations of the future, this paradigm shift confounds them (mysterious “headwinds”).
No matter how you look at the employment system in the United States, it is, at best, underperforming by any reasonable standard (200,000 jobs per month should be the floor, not the ceiling) or, far more likely, in a state of renewed decline.
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