The Great Recession has taken its toll on America. The New-Normal in U.S. economic data and jobs is starting to look like more like Europe every day, except that none of us get five-weeks off or have guarantees of real retirement income or anything resembling assured healthcare even after the new legislation passes this year. Friday’s jobs data with a 10% unemployment rate and a non-Farm Payrolls figure coming in at -85,000 rather than flat or even a slight gain omits the worst part of the fallacy of real economic recovery down at the worker-on-the-street level. Sure, things are getting better or at least getting less and less bad, on almost all fronts. The numbers say so and it is impossible to deny that we are now in a much different situation than we were in just ten to fourteen months ago. But there is a real undercurrent that is hard to ignore, and that is that the workforce is shrinking at a rate that you have to scratch your head over how strong the recovery is.
I will be the first one to admit that using year-end jobs data, particularly on a preliminary unrevised basis, always feels more like a guess than an exact science. How many people wouldn’t get out to get the government subsidy or go out to interview for jobs in the last two or three weeks of any given year is anyone’s guess. How many people got snowed in is a guess as well, yet it happens. Companies put off hiring decisions until mid-January at too many places to count. There are also many people who work “off the books” during the holiday season as well. But the headline figures are so far off on the contraction versus reality that grasping the real situation may be different from just the Labor Department’s headline data.
The unofficial unemployment rate is reported by most as being above 17%, meaning the officially unemployed plus those working odd-jobs, short-term contracts, or the under-employed. These workers have very little disposable income. And even fewer of the underemployed have the basics like health insurance, IRA and 401/K contributions, vacation days, pay for sick days, severance rights, and significant unemployment benefits.
Barron’s noted this weekend, “By virtue of an extraordinary shrinkage in the labor force, unemployment managed to hold at 10%, while the ranks of the jobless remained a formidable 15.3 million people.” Barron’s also noted that Labor Statistics said job losses were 85,000 on the non-farm payroll count, but an astounding 589,000 by its household survey.
And Bloomberg noted, “Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent…. About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, the Labor Department report showed.”
Hang on one second. Hang on ten seconds. 15.3 million people jobless… 589,000 higher in the household surveys…. 10.4%, except for…. and 1.7 million “opted out”…. What the??? This feels like Uncle Sam is selling and Joe Public is buying into the notion that these other figures (people) are no more than what technology companies would call ‘pro forma’ or non-GAAP in their financial reporting. At some point, it starts to sound like the same argument from those who would still try to sell you on the notion that the Holocaust did not really occur or that it was grossly exaggerated. Maybe these other people aren’t being counted just because they went around the corner for a pack of smokes when the headcount was taken. Or maybe they were abducted by aliens and are taking a time-out on the mothership. There is no way that these people all decided to just become housewives and house-husbands, nor is there a way that most of their household members want them to have that job title.
By the way, college graduates coming out of school (or the same for high school grads that do not go to college or who drop out of school) who had worked part-time or who had not been working at all that cannot find a job and have to live at home with mom and dad or with an older sibling often fall into a statistical no man’s land. At least they still have their iPhone and video game system to distract them.
It is arguable about how many new jobs have to be created per month just to get the unemployment back to 7% or 8% by 2012, but almost all agree that it has to be hundreds of thousands. How many “green jobs” can ultimately fill this gap? How many new branch bank locations are being created? How many education and healthcare positions can keep filling the gap? Americans who cannot find work are going to have one of three new job descriptions by 2011… The accidental entrepreneur, the accidental house-spouse, or the independent street technician.
Everyone wants to bet on a double-dip recession happening in late 2010 or in 2011. Two issues are likely to dictate that more than anything…. the REAL employment picture is probably first, and definitely is the issue of today versus tomorrow. Taking effective tax rates back up is the other lynchpin, but that is another argument for another day and falls into what we all have to worry about tomorrow versus today. Asking people their opinion of the jobs market is also very regional, particularly if you ask unemployed or underemployed workers in Michigan what their prospects are versus those in Texas.
Economic models run by economists have stated over and over that unemployment is a very lagging indicator. Arguably it is a sagging indicator. The New Normal is becoming “The Normal of Less and Less.” It was just in November that it seemed as though there was an outside shot that unemployment might register back in the single digits at the end of year data. That may be farther out now, but ultimately that will occur. If they keep counting a smaller and smaller workforce, then the unemployment rate can magically go as low as those creating the figures want them to read. It will be interesting to see in a year or so how the number of taxpayers’ household dependents looks compared to that of 2005 or 2006.
Every single month we keep hoping that the jobs data will be the last bad month. And we keep having to buy into a jobless recovery as the new normal, so the recovery is only applying to 90 official workers of every 100 or just under 83 of every 100 on an unofficial basis. The retail gains and industrial gains being seen in the recent months are also partly just because they are being compared to year-ago data when the benchmarks were so low that if the figures were negative again then this would not just be a recession. The only down month in the S&P 500 since last February was in October, yet the S&P is up 10.5% since the end of October (and up 55% since the end of February 2009). The DJIA has only been down one month (June) and is up 50% since the end of last February.
JON C. OGG