A few days ago I compared Shrub's job creation record to that of every president since 1939, and found his performance, um, somewhat lacking. Today the financial markets got a sharp reminder of that fact:
Jobless Benefit Rolls Hit 20-Year High
WASHINGTON (Reuters) - The number of jobless Americans receiving benefits hit its highest point in more than 20 years last month, the government said on Thursday in a report underscoring the persistent weakness of the U.S. labor market . . .It also said first-time claims for unemployment insurance rose by 5,000 to a seasonally adjusted 439,000 last week from 434,000 a week earlier, surprising economists on Wall Street who had expected claims to edge down a bit.
Now until recently, investors have been inclined to shrug off bad employment news, on the assumption that when the economy finally begins to pick up steam later this year, the Great American Jobs Machine will also shift into high gear and start pumping up the payrolls.
But this rosy view of the world is getting harder and harder to maintain. The stock market's faith in the second half revival is being sorely tested by the labor market's stubborn refusal to come to Jesus. And so far, Preacher Bush and Deacon Greenspan have yet to find the sermon that will move the errant sinner from his ways.
The labor market's reprobate ways can be seen in the following chart:
First-time claims for jobless benefits are shown by the blue line; total claims by the red. The period shown on the chart starts with the peak of the last economic expansion in March 2001.
As you can see, both first-time and total claims have been climbing since the beginning of the year. While the "end of major combat operations" in Iraq brought some slight relief, first-time claims are still running above 400,000 a week -- the level considered consistent with a stable unemployment rate.
Total claims, meanwhile, are heading towards the 4 million mark, and are already higher than the post-9/11 peak they reached in late 2001.
This is not at all how "normal" economic recoveries are supposed to work. Even though the economy has been growing (slowly) payrolls have been shrinking for the past five months in a row -- and six out of the past seven months. To see just how strange this is, let's take look at unemployment claims in the same time period following the previous economic expansion, the one that ended in July 1990:
Clearly, for Shrub, this ain't his father's recession. True, first-time jobless claims did hit a secondary peak at the end of 1991 (about the time George Bush Sr. was heard to say, "Message: I care.") But this setback was much less dramatic than our current one, and total claims remained well below their recessionary peak. By late 1992, the labor market was on its way to recovery -- ignoring that strange one-month spike, which, as I recall, was caused by a GM auto strike.
Politically, though, the labor market's 1992 rebound came too late to save George I. For that reason, George II and his loyal family retainers must be looking at today's numbers with a great deal of forboding. Because the trend is more consistent with the onset of another recession than it is with an acceleration of the recovery. If 1991-92 was the era of the jobless recovery, you'd have to call the past six months the job killing recovery.
The bulls will (and do) disagree. Focusing on the labor market now, they say, puts the cart before the horse. Job growth, they argue, always lags economic growth. Why? Because in the early stages of a recovery, as demand starts to pick up, employers can usually increase production without adding new workers. But, as demand continues to grow, they finally have to start hiring. This, in turn, boosts income, which boosts demand, which forces them to hire more workers. Presto chango! Down comes the unemployment rate. Prosperity for all (or nearly all)! The system works!
Now all this is true -- but only up to a point. And we're already long past that point.
The next chart compares the year-over-year growth in GDP to the year-over-year change in payrolls:
As you can see, the relationship is usually pretty tight -- as tight as a slow dance at a high school prom, although maybe without the ass grabbing. When economic growth moves one way, job growth usually stays right on its thigh.
But since the mid-90's, the chaperones have been patrolling the dance floor much more closely. Job growth has stopped tracking GDP growth. And since the last recession, they've gone in different directions all together. Pretty soon, job growth might not even be returning GDP growth's phone calls.
Or, more likely, GDP growth will have to come down to job growth's level to kiss and make up. Why? Because shrinking payrolls and a rising unemployment rate means less disposable income, which means less demand, which means . . . trouble.
Interestingly enough, wages have been growing at a relatively decent, and accelerating, clip over the past year -- despite lousy employment numbers. This has helped offset the hit to income, and allowed GDP and job growth to keep going their separate ways. But, gravity can't be denied forever. Over the past few months, wage growth has slowed sharply. If wage growth continues to slow, and payrolls keep shrinking, it's hard to see how the U.S. economy can keep expanding at its current sluggish pace, much less produce the kind of growth and profits the bulls are expecting to see.
If President Shrub and his advisors are nervous, Fed Chairman Greenspan and his advisors must be as well. But they probably aren't surprised. The economy is behaving more or less as their model says it should.
With actual GDP growth far below the economy's growth potential, the unemployment rate should be rising and wage growth should be decelerating. And it is. The only remaining question is how quickly those downward pressures will be transmitted to prices, leading to a further decline in inflation -- and, ultimately, to outright deflation.
Can that trend still be turned around? The next few months will be crucial. All across working America, withholding tables are being adjusted to reflect the marginal rate reductions in the Republican tax cut package. Meanwhile, the Treasury is getting ready to cut millions of rebate checks for the higher child tax credits that were also part of the package.
But, as this USA TODAY story points out, what the federal government giveth, state and local governments taketh away:
Even before households decide what to do with their federal tax breaks, cash-strapped states and localities are claiming a chunk of that change. Starting this month, many are raising taxes on income, sales and property; excise taxes on cigarettes, beer and gambling; and fees for everything from birth certificates to college tuition.
These tax increases, while small individually, collectively could more than offset Shrub's tax cuts. And, while his cuts disproportionately benefit the wealthy (those more likely to save), the state and local tax hikes are more likely to hit the less affluent (those more likely to spend.) If Keynes were alive, he'd be banging his head against the wall right now.
Unless the labor market starts to show some signs of recovery -- or least, stablization -- that's also what Shrub may be doing come next November.
"As you can see, the relationship is usually pretty tight -- as tight as a slow dance at a high school prom, although maybe without the ass grabbing. When economic growth moves one way, job growth usually stays right on its thigh. "
Sniff- that's the most beautiful economic analogy I've ever read.
You Rule Billmon!!!
I'm a little confused with GDP going down on Job growth for the benefit of shrinking and growing. Just kidding.
Seriously, I had a question about:
"Interestingly enough, wages have been growing at a relatively decent, and accelerating, clip over the past year -- despite lousy employment numbers. "
Many big companies have put a freeze on raises and promoted plant shutdowns over the past two years. Doesn't this action have a big impact on the wage growth stat? What is the stat for, all jobs, old jobs, new jobs? It seems like something that can be manipulated.
How many people have given up getting an official job and moved to the gray sector to do some moonlighting, or are just becoming totally disenfranchised, homeless, alienated from society, "bums"...
Republicans will continue to make the "this recession isn't our fault" argument (a none-too-subtle variation on the standard "It's Clinton's fault" blather.) And I am willing to grant them that they didn't cause the recession (unless there's another one.) But the argument has to be made, repeatedly and forcibly, that they have done almost everything possible to make it worse, and to cause ordinary people to suffer more as a result of it. And unless we throw out this kleptocracy, even an eventual recovery isn't going to be very happy for anyone except their fatcat contributors and people who can't see any economic conditions beyond the stock market averages.
I quit left my company to work (dienfranchised) on a contract basis for them (moonlighting). Then moved to England for 6 months(homeless), then traveled for six months(bum), then moved to the middle of Kansas(alienated). I guess that's at least one.
Many big companies have put a freeze on raises and promoted plant shutdowns over the past two years. Doesn't this action have a big impact on the wage growth stat? What is the stat for, all jobs, old jobs, new jobs?
The stat is for average hourly wages of non-supervisory production workers. That sounds hopelessly old economy, and it is, but it's also a reasonably good indicator of wage trends. Its main drawback is that it isn't adjusted to reflect changes in the composition of the work force -- i.e. more computer programmers and less janitors, or vise versa.
Another statistical series, the Employment Cost Index, is adjusted, but it only comes out once a quarter.
Over the years I've misspent watching this stuff, I've never noticed the ECI and the average hourly wage moving in different directions for long, except when benefit costs are either soaring or diving. But there's a version of the ECI that doesn't include benefits, and it almost always tracks the average wage.
Billmon, your comment about benefits is interesting in light of the poll that just came out. It turns out that almost 50% of Americans have had some problems with getting or keeping health insurance coverage. That is one sector of the economy where prices are not going down -- and it is eating into company profits right and left. How soon do you think we'll see the collapse of the health care market, especially with these guys in charge?
Of course, that poll shows that after drinking their kool-aid, many Americans are looking for the market god to save them from the evils of socialism or regulation.
So we're heading into the baby boomer retirement years with indicators heading downward. I bet we are in for a pretty nasty stretch.
This is my first time commenting on this site.
Anyway, our corporations have "offshored" 3 million factory jobs over the last 3 years, and now they're in the process of "offshoring" as many back office jobs as possible, at least 500,000 IT jobs so far. Our economy is on the verge of collapse because of it, you can't permanently eliminate this many jobs and expect it won't have an effect.
Good comment, SteveC!
Please come back and comment often. Comments are a gold mine of knowledge, humor and insight. I value your input greatly.
This economy is making the Baby Jesus cry!
check out Democracy Now - Pacificia Radio today
Seems 'w' 's ancestors had slaves on both sides of the family. i always had the sense that 'babs' bush was kinda evil incarnate........
How many people have given up getting an official job and moved to the gray sector to do some moonlighting, or are just becoming totally disenfranchised, homeless, alienated from society, "bums"...
Ville: Hey, I resemble that remark! ;-)
As someone who actually walked away from a healthy income (in a very unhealthy environment), without any personal access to "the dole", then watched the economy disintegrate under Bush, I have to imagine I'm far from alone. And if the *official* jobless rate was 6.4% for May, then the true rate by now is probably more like 15%.
It's really not a question of people who stop looking. It's a question of the multitude who were never counted (no benefits) to begin with, or who ran out their benefits in the interim. Even the most recent unemployment extensions passed did *not* retroactively cover people who'd recently "fallen off". They, like I, are simply unaccounted for.
If you can point me to that "gray sector", though, I'll be much obliged. Otherwise, I'll soon be joining a group called "Bums against Bush".
Billmon: One thing that troubles me about those unemployment graphs is that, if I'm interpreting the legend correctly, the "initial claims" plot should actually be a discrete bar graph, rather than a line graph. If the figures represented are truly brand new claims during that period, it's not a cumulative trend at all, as suggested by a continuous linear plot, but mere increments that contribute to the "continuing claims" in the following reporting period.
Of course, one vital component is *never* reported -- discontinued claims due to expiration of benefits. Without being able to analyze that figure along with "new claims", one can never tell exactly *what* "continuing claims" indicates. For example, if a million new claims emerge in one reporting period, but continuing claims stays level in the next period, does that indicate that new claims were fully offset by re-employment of others, or that a million people simply lost their benefits -- thus, ceased being counted -- and remained jobless?
You know what they say: "Figures lie and liars figure." And there are very few liars more skilled than those in the government.
... and now they're in the process of "offshoring" as many back office jobs as possible, at least 500,000 IT jobs so far.
SteveC: Ah, so that what happened to my former career path! Not surprising, then, that IT has almost competely shriveled locally, and been relegated to the last page of the Want Ads.
Besides, who wants an "old" (and occasionally feisty) programmer? KMart, here I come!
KMart, here I come!
Highly educated, elegant 40-something man of my acquaintance just took a job as an overnight stocker at Target.
Can you say "underemployed," boys and girls? It's gonna be the buzzword of the Aughts.
This ain't over yet. We may get a little uptick as people spend their advance tax refunds this fall, but I still believe we're going to continue sinking gently for quite a while to come, and conservatives are going to be desperate for an explanation, given that taxes and interest rates are at all time lows.
Instead of the Aughts, I prefer the "0-0's"...
Unfortunately, it keeps sounding more relevent with each passing day.
Also, energy prices are considerably higher than last year, and that's really going to hit home (literally) this winter.
Come on, it's Bush's Faith Base Economic policy, just like the Faith Base Intelligence, or his Faith Base Homeland Security policy.......... I'm sure Bush talked to God and he told him that all of this will workout.