Its important to recall that
economic data – indeed, any data series – is not a snapshot, but a moving
picture. And even moving picture requires context.
Let’s use a few specific examples.
We know, for example, why the unemployment rate is so low: NILFs.
(Not-in the–Labor-Force) The common (but incorrect) answer simply assumes
many more people are getting jobs. The reality is that people have been
dropping out of the labor force at an unprecedented rate. 5% unemployment
reflects a dearth of job seekers, not a plethora of new jobs.
Some of the talking heads have even
touted the drop in long term Unemployed to 17.8% from over 20% in May (BLS Table A-9)
as a positive. How can that be bad, you may wonder? The answer is, it’s all
relative: Historically, an unemployment rate of 5% is typically accompanied
by long term jobless rate of 10.7% — not 17.8%, according to the same EPI release that was widely touted as revealing better
Indeed, let’s have a look at that improving
quality of Personal Income data: After nearly 4 years of below
average wage expansion, we see for the first time post-recession, that
there is now greater growth in above average wages.
Taken in isolation, this appears to be a positive development. Let’s use what
we know to be true to see if we can determine what this might mean and why.
First, consider the reason for the
shift. Since the end of the recession, we have seen a hiring surge in
low-paying jobs: retail, leisure, hospitality, and fast food
industries. Many of these new, lower-wage workers had been laid off from
higher paying jobs with better benefits (read: health care). Those people who
were willing to take these lesser paying employment were doing so out of
necessity. We also hear anecdotally about many of these low wage jobs are
actually a second income.
4 years of minimum wage hiring
spree later, these industries, by and large, have a sufficient number of
workers to fill these new slots. They no longer need to mass hire, as they have
achieved adequate staffing levels. I would expect to see these sectors shift
towards the replacement of departing workers, rather than brand new hires. That
is consistent with the BLS hiring data as well as the EPI
analysis of this data.
Drilling further down into the most
recent BLS data, we can see which sectors the Labor Department reported growth
in that have "above average wages:" most prominent are Construction,
Transportation, and Warehousing. Half century low interest rates are the reason
for the strong Construction data. Its too bad we cannot export houses, perhaps
that might be a way reduce our current account deficit.
Another sector that enjoyed robust
growth was Transportation – namely, trucking. While this represents strength in
the economy – it is the economy of China, and not the United States – that is
the primary beneficiary of this. As this discussion of West coast port activity
makes clear (see: Preparing
for a monster delivery) everything associated with the importation of
finished goods from China is a growth business. Short term, job growth for
truckers and warehouse foremen is a new positive. Long term, this enormous
balance of trade deficit is not helping the U.S. get its structural problems
Following a mild recession and a
horrific market crash, a large group of people have been taking lower paying,
jobs with weaker benefits. A combination of post-bubble economics,
globalization and outsourcing are the primary reasons why. After a four year
hiring spree, these lower paying industries have most of the employees they
need. It’s somewhat ironic that the
secondary sectors of transporting and warehousing these overseas manufactured
goods – formerly made here, now outsourced – is a growth sector. That’s hardly
cause for celebration.
Then there’s inflation. Despite
Thursday’s CPI data, unless you live in a cave, you know inflation has been robust. I noted Wednesday that real wages continue to fall
behind real prices, regardless of whether you look at a 20 year or a 5 year time period. The Bureau of Labored Statistics (to
borrow Barron’s Gene Epstein term) can use whatever hedonics and seasonal
adjustments they desire, but it doesn’t change reality one bit. Inflation is
eating into limited income gains of most consumers faster than their wages are
rising. Unless this trend is reversed, this bodes poorly for the future
standard of living of U.S. consumers.