There are two ways to approach last Friday’s monthly release of the US jobs figures:
- One is the Wall Street way, which is to bet on whether the numbers will be bad enough to persuade the Federal Reserve to boost its money printing operations
- The other is to look for clues as to what is happening in the real economy, and to check whether demand might be about to improve
Last Friday provided a good opportunity for both approaches.
Traders in financial markets took the view that the jobs data was bad, and that a few more months of such data would cause the Fed to move its printing press into a higher gear. This would mean higher prices for financial assets, and bigger bonuses for traders.
Those looking for clues about real demand agreed that the numbers were bad. Comparing the trend between December and January, there was a loss of 2.9m jobs, compared to a loss of 2.5m in the same period last year. In fact, it was the worst swing since 2009, when the economy lost 3.7m jobs.
Even more importantly, we now have 2012 data for per capita income: the chart compares this with the jobs data:
- Per capita income is just 1% better than 2010 income in $2012 (red line)
- It is 6% below the 2006 level, and still below 2009 income
- Unsurprisingly, the jobs numbers have also not shown a full recovery
- They are 1.5m below the 2007 peak (blue column)
The second chart highlights the key issue, the alarming and continuing decline in employment amongst those in the Wealth Creator 25-54 age group:
- Male employment used to be virtually 100% in this group (blue line)
- Female employment had also risen steadily till peaking in 2000 at 77% (red line)
- Today, one in five adults in this age range is out of the labour force (black line)
This decline in the participation rate is, of course, the major reason why the overall jobless rate has been falling to its current 6.6% level. People who have dropped out of the labour force don’t count as unemployed in the jobs data.
This makes it all the more surprising that the Fed could possibly consider that its money printing has had any impact on the employment market, one of its twin objectives alongside inflation.
The dotted lines explain why the overall participation rate is falling and is now down to 63% from 67% in 2000:
- The number of New Old 55+ working had been increasing since the late 1990s (dotted lines)
- This had partially compensated for the decrease in those working in the Wealth Creator cohort
- But since 2008, the New Olders’ participation rate has also stalled for both men and women
Common sense would suggest that these issues are far too complex to be solved by simple monetary policy.
Printing money, or reducing interest rates, won’t help Wealth Creators gain the skills they need for employment in today’s economy. Nor will it help New Olders find a second career to provide extra cash when they find they cannot live on their small pension.
But the Fed has locked itself in a corner, where it would now be too embarrassing to admit its policy has been a mistake all along. Whist Wall Street doesn’t care, as long as the bonuses continue.