We’re sending more kids to college, but does the economy create good jobs for them?
By Larry Kummer, editor of the Fabius Maximus website:
I will perform an unusual magic trick for you using the employment report. Rather than transforming something mundane (a bird, a hat, cards) into something spectacular, I will transform the spectacular October employment numbers (now sparking a thousand excited articles) into something mundane.
October’s non-farm payroll gain (aka the Current Employment Survey) was a blockbuster at 271,000, vs. the 3-month average of 187,000 and the 12 month average of 230,000. Better yet, it was a big “beat,” with Wall Street economists expecting 150,000 to 200,000.
See this wonderful result on the graph of percentage change in jobs year-over-year, not-seasonally adjusted. Since the population grows, the percent change better shows the rate of improvement over time:
Not much change, is there?
Monthly jobs, like many economic statistics, are volatile and heavily revised afterwards. The seasonal adjustments necessary to understand the month to month changes are problematic (they’re volatile, too). But the gigantic US economy is like a supertanker: it changes direction only slowly — as seen in the trend of year-over-year numbers. A legion of economists and business journalists are paid to transform the short-term statistical noise into entertainment for readers.
Seeing the new America in the details
Where is the job growth? The answer tells us much about America. Despite claims of the growing government, their Federal, State, and local workforce has grown only 0.5% YoY (mostly from jobs in education).
We’re told the future lies in the information industries (as it was “plastics” in 1963’s The Graduate). But that’s only for a few. Jobs in the Information sector grew 1.6% YoY, but only to 2,797 million (2.0% of all jobs). Jobs in the Computer Systems Design and Services industry (part of the Professional and Business Services sector) grew 5.6% YoY — but only to 1.9 million (1.3% of all jobs).
Where are the new jobs? In the Prof & Biz Services sector look to the Administrative and Waste Services industry: up 2.2% YoY, to 9.1 million jobs (a gain of 196,000 jobs). Better yet is the Leisure and Hospitality sector: up 3.0% YoY (438,000 new jobs). The hot dot in that is Food Services & Drinking Places: up 3.4% (374,000 new jobs).
We are sending more kids to college, but is the economy creating good jobs for them?
About the rush to raise rates
In a typical recovery by now the Fed would be raising rates to prevent the economy from overheating. The Fed governors, their thinking rooted in the past, clearly want to do so. But the inflation metrics show no heating (let alone over-heating), with the YoY CPI below 2% since May 2012 (excerpt for 3 months).
The October jobs report confirms the cool economy. Look at wages and hours of production and non-supervisory workers in the private sector (seasonally adjusted).
- Change in average weekly hours YoY: zero (33.7 hours).
- Change in manufacturing overtime: -0.1 hours (to 4.3).
- Change in weekly earnings: 2.2% (to $713.77, up 1.3%/year over 5 past years).
The MoM changes in earnings were impressive (+4.4% SAAR for all employees, +9.1%). But these numbers are very volatile, and the many similar pops of the past six years proved fleeting. I suggest waiting to see if this is a blip, or a trend:
The wage numbers are important because the Fed gets excited by rising wages (aka “wage inflation”), as the Fed serves America’s corporate elites — who want to capture, not share, the gains in productivity.
About the real rate of unemployment
Measuring the complex US economy is like counting apples. Whatever the “true” and hotly disputed employment numbers are, the Bureau of Economic Statistics provides six versions. Each has its use; none is more correct than the others. And all of them have dropped during the past 6 years.
Follow the trends, not the noisy short-term data.
Nothing unusual happened in October. The data is consistent with other recent data showing weakness in manufacturing and commodities, but strength in the far larger service sectors. The Fed might use this report as an excuse to raise rates.
But the big picture shows a slowing economy, with the strong dollar depressing exporting industries. Unless these things change, any Fed rate increases will be small and quickly reversed if the slowing continues. So on Wednesday, Janet Yellen told a House committee that “Potentially anything – including negative interest rates – would be on the table [if the economy were to] deteriorate in a significant way.” By Larry Kummer, editor of Fabius Maximus
So, given Yellen’s admission, expect the unexpected. Read… What Will Cause the Next Recession?