I was disappointed last week when two of my favourite publications, The Economist and the Financial Times (both British) capitulated to the new recovery myth in the US labour 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 10 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 labour 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 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 labour 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 labour 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 labour 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.
Further Reading: For a broader take on this perspective, see the work of Michael Greenstone of MIT/Brookings and his Jobs Gap.