Last week we got a pair of jobs reports that left a lot of people scratching their heads. Payrolls fell by 20,000 jobs while unemployment declined. How can we lose jobs while unemployment declines.
The first answer that many commentators give to that conundrum is that this must represent a decline in people being counted as actual job-seekers. They’ve just dropped out of the job market, so they no longer show up as unemployed.
But that answer doesn’t account for January’s numbers. The labour force actually grew by 11,000 people in January. That means that more people were seeking jobs than before. The old bearish-sceptic answer won’t work in today’s economy. Americans are returning to the job market, instead of fleeing in despair.
The biggest positive in the numbers is that the liquidation of construction jobs has kept up. During the bubble, far too much human capital was malinvested in the housing market. People developed relationships, skill sets, and years of experience performing in the unproductive housing sector jobs. As these jobs are lost, human capital is freed from the housing trap creating more potential for growth as labour resources are re-allocated.
And they are being re-allocated. Instead of merely being allowed to sit idle, the loss of 75,000 jobs in construction was largely offset by a surge in private sector, non-construction jobs of 63,000. The correction from bubble malinvestment of human capital is well underway.
The increase in manufacturing hours worked also implies that the liquidation of malinvestments and reallocation to activities now viewed as productive has begun.
There are, of course, new hazards. Government support for various areas of the economy—from homes, to finance, to automobiles, to stimulus funded private projects—may be resulting in a new round of malinvestment. Financial capital and human labour may be being drawn into new bubbles, not yet visible. Unfortunately, the signals for a recovering economy may just as well be the signals for a bubbling economy.
You will likely hear a lot about this in the next few months. Especially if unemployment ticks back up, which it may well do in the next few months. Bearish prognosticators will say that the January numbers were a “head fake” and predict the economy will quickly slip back to a recession.
But higher unemployment numbers will not necessarily indicate an economy retreating into recession. They may well be due to the accelerating rate of more hopeful workers returning to the jobs market.
Instead of looking at the aggregate unemployment or jobs creation numbers, we’ll need to pay attention to which areas jobs are being created and where they are being destroyed. If construction booms again—watch out, that’s probably a bubble. If other areas are growing, we need to see whether these reflect economic sectors with long-lags between initial investment and delivery of goods to consumers—these are also bubble indicators.
Healthy jobs growth will be a mix of some long term projects and a lot of emphasis on consumer facing jobs. Retail, for instance, added 42,000 jobs in January. This most likely reflects the ground level view of store managers with best access to consumer spending habits.
Another great indicator will be apartment rents. These have been in rapid decline, and may well decline further. But apartment rents are driven by household formation—the sign that workers believe their income and employment have become steady enough to move out of their parents homes or decouple from roommates. Watch this to grow if good jobs are being created.
In short, the thing to watch for is not just whether we have overcome the “jobless recovery” phase of the economy. It’s whether we are adding jobs in healthy—non-bubble—sectors. And January’s jobs reports at least points to reasons for hope.