While there are revisions to be made, and further revisions of those revisions, last month’s payroll report identified, unfortunately, what many economists are using for the “finish line” in this “recovery.” It is estimated in May that the US economy finally, ploddingly, regained the number of jobs it lost in the Great Recession. It took an enormous six years, a strained symmetry that belies everything about cycles (and points to deeper problems) unseen since the 1930’s.

Even within the proper context, there is still something not quite right, in my estimation, with the reported pace of the recovery. The Establishment Survey, as we will be reminded tomorrow, is behaving oddly, to say the least. Income growth just doesn’t match the purported strength or acceleration in jobs, tepid as it may be in light of historical comparison. The only possible explanation is quality vs. quantity, but even here I think it comes up short of comprehensive.

To be reminded of the quality side, the Wall Street Journal reported yesterday that commercial office space is also behaving oddly.

Employers have only reoccupied about 52% of the 142 million square feet that went vacant amid the economic downturn, with occupancy in the second quarter growing by 2.8 million square feet, according to numbers set for release Tuesday from real-estate-data firm Reis Inc.

The office vacancy rate remained unchanged in the second quarter at 16.8%, still near its postrecession peak of 17.6% in 2010 and well above the 12.5% rate in 2007.

In the destruction of the Great Recession, companies, due to cutting back or bankruptcy, reduced their office footprint. A recovery, however, is supposed to be exactly that – to literally recover what was lost. It took six years, allegedly, for the number of employees to do so, but where are they being located? It stands to reason that if the number of employees were equal with the last cycle peak, the amount of offices in which to hold them would be somewhat close as well.

The Journal article lists some listless anecdotes for the disparity. The author asserts IT’s space density and the attention to “efficiency” that has been paid, inordinately, during the “recovery.” I have no doubt that those are factors and may explain a small part of the lack of commercial attainment, but those are nowhere near compelling enough to maintain the illusion of “moderate growth.”

Simply put, there aren’t near as many office workers now as there were in January 2008. The reason for that is equally simple and evident, namely that the recovery is nothing but reflation, and thus epically hollow. We know that manufacturing and construction jobs are still right around cycle lows, not having attained much positive rebirth at all. Yet, this economy’s marginal growth in employment must be taking place outside of offices, though likely in establishments that pay a whole lot less – the bartender economy. In other words, this is another dispensing of the practical side of intentional negative redistribution.

We know most companies are wholly focused on saving cash flow to repurchase shares, and that the gazelles, the small growth businesses, that propel high value jobs have been conspicuously absent these past six years. What is happening is asset inflation and financialism create only opportunities in areas that service such beneficiaries of “pump priming.” The orthodox idea is that spending of any kind creates additional spending, which begets more and so on. Such generic simplicity undervalues the true nature of the economy, which advances on wealth rather than consumption.

The destruction of wealth and its replacement with paper pricing, inflation if you will, is the structural problem that is both an impediment to better function, and thus more growth, and a direct contradiction of monetary neutrality. To see this in all its destructive “glory” we need only examine the obvious contradiction inside the same Journal article. Despite the lackluster demand for office space, for whatever reasons, developers are still building new projects at an incongruously robust pace.

You would think that there would be a tight correlation between demand for space and the propensity to build new, but the vacancy rate has been no impediment because liquidity and credit are plentiful. High vacancy projects, made more so as new space comes into the “market”, can be kept afloat by the rapacious yield appetite for debt created by intentionally suppressing rates (bubbles are rationalizations, and vacancy rationalization is high on the list here). So the market acts not as a market, but rather a glut of overcapacity that is tied directly to financialism.

As quoted above, vacancy rates now are not much better than they were in the worst days of 2009-10. However, real estate prices have also been reflated, an interruption in signaling that allows the establishment and maintenance of such gross overcapacity. Developers are misallocating resources because price mechanisms under intense manipulation are essentially worthless to “markets”, reacting to the overarching and persistent appeal to credit and debt that maintains some form of price momentum – fundamental factors such as actual demand for space need not apply. As long as prices are reflating none of this matters, an echo of just how much this period reflects the desperate misallocations of the still-recent past in everything from subprime to MBS collateral.

Again, there is no need for convoluted explanations to torture logic in such a manner as to maintain the illusion of recovery while at the same time “explaining” why so many variables and data points argue directly against it. The end result, so far, of so much monetarism/financialism these past few decades is as we see here – where the economy has traded office jobs of decent income opportunities (as companies vie ever-tighter to stock prices) for low-level service jobs (obviously outside an office setting) to capture whatever trickle from those “lucky” enough to be inside the asset inflation bubble. This is not the basis for a real recovery, but rather a slow burn or descent toward another round of realizing the scale of misallocation and negative redistribution.


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