Despite the near-consensus that the economy is getting
stronger, the major direct indicators of economic growth remain in the tepid
zone where they have been for the last year or two. In our view perceptions of economic growth
have been distorted by the illusion of lowered expectations brought on by the
malaise of the last five years. It
reminds us of the song a number of years ago called, “Been Down So Long It
Looks Like Up To Me”.
Nothing illustrates this better than the cheering over
last week’s payroll employment report showing a November jobs increase of
203,000, accompanied by a drop in the unemployment rate to 7%. Compared to the past, however, the gain in
employment was mediocre, while the unemployment drop was as much a result of a
lower participation rate as it was of the rise in jobs.
The 203,000 rise in November jobs, if maintained (and
this is not necessarily the case), would come to a total of 2,436,000 on an
annual basis, or 1.78% of the total number of employed. This increase pales when compared to the
increase seen in past economic recoveries, and is far under the level needed to
engender a self-sustaining economic recovery.
We looked at the last eight economic recoveries using the
official dates determined by the National Bureau of Economic Research and found
that, on average, the number of employed increased 2.94% a year from the trough
through the peak of the business cycle.
In order for that to happen in the current cycle, the increase in jobs
would have to amount to a monthly average 335,000, based on the number of
people with jobs. Obviously we are
nowhere near that rate of increase now or at any time since the recovery
started. The November rise of 203,000 only
seems high in comparison with the results of the last five years, but is an
illusion based on lower expectations.
As for the lower unemployment rate, we are far from the first
to point out that this is as much a reflection of the declining participation
rate as it is of the increased number of employed. Some contend that the lower participation
rate is a result of the aging of the population as more people reach retirement
age. However, this does not explain why
the participation rate of those between 25 and 54 years old has also been
declining at a rapid rate.
In addition, keep in mind that the so-called U-6
unemployment rate is at 13.6%. This
number includes, in addition to the officially reported unemployment rate,
discouraged workers “who currently are neither working nor looking for work but
indicate that they want and are available for a job and have looked for work
sometime in the past 12 months….and those who want and are available for
full-time work but have had to settle for a part-time schedule.” We note, too, that the number of employed
peaked in January 2008 and still remains 1.4 million below that level despite
the rise in population since that time.
All in all, the increase in the number of jobs has not broken out of the
rut where it has been for the last few years.