Yesterday, the mainstream media got very excited about the drop in initial unemployment claims. Various outlets proclaimed that the number represented labor market strength. Today, the labor market is weak again. Only 169,000 jobs were added in August and the last two months were revised downward. In the last two years, job growth has exceeded the 200,000 necessary to keep pace with the country’s population growth only seven times and has never approached the 400,000 that would be indicative of a respectable labor market as you can see for yourself in the chart above.
Job creation is woefully inadequate for this stage of the recovery, and 144,000 created jobs out of the 169,000 are mostly low-quality positions like retail and food service. Since consumers are not earning enough money, they are relying on credit, which means even the lackluster economic growth we are experiencing is unsustainable.
The fall in the unemployment rate does not indicate that more people have jobs, but rather that more people have become discouraged and ceased their job searches. The labor force participation rate continues to sink. Typically, a recession causes a fall in the rate, which resumes growing soon after the recession ends as represented by the downward pointing arrows. The upward pointing arrows show that the typical pattern died in the 21st Century.
Some commentators like to blame America’s aging population for the fall in the rate, but older workers have actually increased their participation somewhat since 2009.
During the last seven months, the economy has created full-time jobs at a rate of 32,000 per month and part-time positions at 104,000. Another difference in this “recovery” from previous versions is that the number of people who are working less than they would like skyrocketed and remains historically high in comparison to the standard unemployment rate. Note the wide gap between the two lines.
Obamacare and lackluster demand are discouraging firms from adding workers. Note that while productivity rose 2.5% last month, wages only increased by 0.5%. As long as the labor market remains soft, wages will not grow much. Since 70% of U.S. economic growth is derived from consumer spending, expect tepid growth indefinitely.
Only in the Eurozone could a 3.8% rate of GDP contraction be viewed as a positive development:
“The figures were much better than our expectations,” said Nikos Magginas, senior economist at National Bank of Greece. “The target for a 4.2% contraction for the full year is feasible, and since we are expecting an equally strong third quarter it could even reach 4%.”
The rate of contraction has decreased for three straight quarters leading the mainstream media to declare that Greece is emerging from recession after “analyzing” the data. Well, analyze the data a little more. On three separate occasions since the beginning of the crisis, Greece has witnessed this same trend as illustrated by the red circles. You can see for your self what happened next.
Don’t put the checkbook away, Angie.
The mainstream media is calling an end to the rupee rout. Beware.