When Recovery’s Just a Word

I was disappointed last week when two of my favorite publications, The Economist and the Financial Times (both British) capitulated to the new recovery myth in the US Labor Market. I generally depend on London, not New York, to give me a better read on the US economy. This has been true for over two years now as the New York Times and the Wall Street Journal have either leaned in an overly optimistic direction, or, missed whole portions of the story entirely. For example, let’s look at the big picture. Here is a chart of the total number of employed Americans over the past ten years. | see: United States Employment in Millions (seasonally adjusted) 2001-2011.

Currently the problem in the US jobs market mainly lies with, what I call, the maintenance rate. This is the minimum monthly job creation rate that our enormous system–our economy and government with its revenues and liabilities–must have in order to maintain itself as population grows. Getting lost in the weeds, therefore, of monthly unemployment rates is a waste of time.  After having lost 8+ million jobs from the top of the last expansion, nitpicking one’s way through the additions, revisions, and changes to the presumed size of the work force misses the point. And that’s this: any month in which the US does not create at least 125,000 jobs, from a systemic point of view, is negative. It’s less than zero.

This is the mistake both Gavyn Davies of the FT and G.I. of the Economist’s Free Exchange made last week. Their conclusion–that a recovery in the US labor force is now underway–is not warranted, and not supported by the data. Why? Because not only did the US economy lose at least 8 million jobs in the crisis, but, in the three calendar years of 2008, 2009, and 2010 barely a million net jobs have been created. During that time the US economy instead needed 4.5 million new jobs just to maintain equilibrium. Last month’s payroll data is simply more noise, therefore, that takes place around a horrid, terrible bottom in the US job market. | see: United States Total Non-Farm Payrolls in Millions (seasonally adjusted) 2001-2011.

Now you know why annual government budgets have blown out into the trillions: the economic flows normally provided by a functioning economy are now provided through unemployment checks, food stamps, FDR style spending and other distributions. In short, the “economy” cannot be experiencing a recovery when, after 10 years of population growth and growth in future liabilities, the number of people employed is hovering around levels last seen in 2002-2004. Whether you chose to look at just Non-Farm Employment, or Total Employment, the US Labor Market is essentially flat-lining since a deep trough was reached in late 2009, early 2010.

Those who would make sweeping claims about a recovery in the entire economy should place these two charts shown here in their printed columns, along with the fact that the US population has grown by over 25 million people since the year 2000. I’ve been doing detailed research over the past year on the sectors of the US economy that have indeed been recovering, and, the evolution of labor markets within individual US States. Our spectacular rebound in US exports, for example, while very good news does not mean the entire US economy is in recovery. In addition, the labor market situation in our largest states like California remains dire. No matter how many times journalists use Recovery in their headlines, argumentum ad nauseum does not impress. Until massive restructuring of the US economy starts to unfold, recovery will remain just a word.

-Gregor

Further Reading: For a broader take on this perspective, see the work of Michael Greenstone of MIT/Brookings and his Jobs Gap.

  • http://www.facebook.com/vbierschwale Virgil Bierschwale

    Amen.

    Let me show you what my own research uncovered using the GDP data which gives the same exact results.

    I first became unable to find work in 2003 and the experts will tell you that sub prime mortgages created this mess, but the charts you have here and my own research show that our corporations started offshoring in earnest in 2007 which created the sub prime mortgage mess because the people that were making their payments and struggling suddenly found themselves going from 65,000.00 per year plus to less than 30,000.00 per year.

    http://keepamericaatwork.com/?p=5379

  • InEgoVeritas

    Hi Greg,

    That 125 000 new jobs/month number, does it take into account people who are retiring every month? Since the 1st babyboomers are turning 65 this year and that overall they are representing about a quarter of the US population, it might start to have an impact.

    Christian

  • gregor.us

    Yes, it does. The 125K number is actually conservative. Many use 150K. I went with the lower number–it represents the net additions to the working population.

    Best,

    G

  • gregor.us

    You will not be surprised to hear that some find these charts difficult to face, as they are the most direct portrayal of our labor market. Without spin, exaggeration, or downplaying complexities.

    G

  • Kinsey

    I wish you would put a Twitter widget on here. I know I can do the “share” thing but It’s a pain. Your work needs to be shared but it would help if you made it easier.

    Thanks!

  • gregor.us

    It’s already there. It can be found under the umbrella Share This icon, at the bottom of each post. HTH. Best, G

  • http://blog.competitivefutures.com/ ericgarland

    Back when I was a young and foolish man (as opposed to the middle-aged foolish man I am becoming) I used to think that information was 90% of the battle, psychology a mere 10% or so. Now I realize we’re swimming in useful data, and it only counts for 10% of our success – the other 90% is our ability to process it.

    These charts do nothing if you don’t want to believe what they say. And who would want to believe that their cherished assumptions are wrong?

  • Shan

    You could’ve saved a lot of words by just showing a chart of employment-to-population ratio.

    I’m sure everyone talking about “recovery” is already aware that the employment situation is still pretty bad. It simply looks like employment has started to turn upwards on those charts you posted, particularly once you correct for the surprisingly large impact of the temporary census jobs last year. It hasn’t gone far yet, but people tend to extrapolate in the direction of previous recoveries from recession, and this looks near enough like they usually do, though on a larger scale.

    If it weren’t for various looming problems including energy threatening to put a stop to the recovery before it gets all that far at this slow rate, I expect they’d probably be right.

  • gregor.us

    Alot of what I do here at gregor.us is explain phenomenon I regard as important, in a more expansive way. So, if you heard me talking this week with investor/analyst/money manager friends on a telephone call, I was indeed using the metrics you suggest, like the participation rate and the employment population ratio. However, this issue deserves a more lengthy discussion and here’s why: I’ve learned that the reading public will often skip over key concepts. In addition, because I regard our current macro moment as unique and not seen since the great depression, certain “familiar” and viewpoints are worth revisiting.

    And yes, I am very much of the view that if oil was 14 dollars a barrel–and had been for 18 months–rather than the current price a much bigger rebound would have taken place. Indeed, that’s a core theme in this blog.

    Thanks!

    Best,

    G

  • gregor.us

    Alot of what I do here at gregor.us is explain phenomenon I regard as important, in a more expansive way. So, if you heard me talking this week with investor/analyst/money manager friends on a telephone call, I was indeed using the metrics you suggest, like the participation rate and the employment population ratio. However, this issue deserves a more lengthy discussion and here’s why: I’ve learned that the reading public will often skip over key concepts. In addition, because I regard our current macro moment as unique and not seen since the great depression, certain “familiar” and viewpoints are worth revisiting.

    And yes, I am very much of the view that if oil was 14 dollars a barrel–and had been for 18 months–rather than the current price a much bigger rebound would have taken place. Indeed, that’s a core theme in this blog.

    Thanks!

    Best,

    G

  • gregor.us

    There is even more dire news beneath this overview data, Eric. For example, that 85% of the jobs created in the past 12-14 months are much lower paying or are part-time.

    G

  • gregor.us

    There is even more dire news beneath this overview data, Eric. For example, that 85% of the jobs created in the past 12-14 months are much lower paying or are part-time.

    G

  • timl2k10

    Thank you a million times over. Easy to interpret graphs are priceless, and irrefutable. It is a sham(e) that the MSM parrots B(L)S stats that pretend things are too complicated for the average person to understand, and on this premise can pull the wool over everyone’s eyes. The money that goes to the BLS at least half of it, should be redirected to Gregor.us. I think the Occams(sp?) Razor philosophy is what is needed. The simpler explanations are closer to the truth.

  • http://twitter.com/DonMartinCFP Don Martin, CFP®

    Thanks for the post. I agree with you about the Economist and FT and am surprised they don’t get it.