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Comstock Partners, Inc.
The Missing 9.4 Million Jobs
June 23, 2004
Barrons Magazine (Market Watch)
Although the 947,000 increase in payroll employment over the last three months may seem like a lot compared to what we were getting, it actually falls far short of what we should be seeing at this stage of a recovery.

Here's what we found in examining the last seven economic recoveries: In the first 30 months of the last seven cyclical expansions, employment rose by an average of 7.4% (range: 9.6% to 2.6%). This includes one cycle that peaked in 24 months with a gain of 7.4%. In the current recovery, employment has increased only 0.3% in the first 30 months including the May number and reported upward revisions of prior months.

If employment over the entire cycle had increased by 7.4%, the average of the past recoveries, May payrolls would have come to about 140.6 million rather than the 131.2 actually reported. This means that there are now 9.4 million fewer jobs than there should be at this point in the cycle, and that we needed an average increase of 323,000 jobs for each of the past 30 months to equal the average job growth of the last seven expansions....So let's not hear any more about employment being a lagging indicator. It is not, and even if it were, 30 months is surely enough time to catch up.

The lack of employment gains on this cycle has had a distinctly negative impact on wage and salary growth. Since consumer spending is about 70% of gross domestic product, it has taken massive monetary and fiscal stimulation to pump up asset values (homes and stocks) and thereby raise consumer wealth in a desperate effort to keep the expansion going. However, with the end of the tax refunds and the likelihood of higher fed-funds rates, there is little stimulation left, and the economic recovery is unlikely to be sustained.

-- Charles Minter, Martin Weiner



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