On Trend, What Trend?

by: Max Fraad Wolff

January new jobs performance was right on the average rate track,(+157,000) with strong upward revisions to November and December 2012 (+127,000) and a slight increase in the unemployment rate, 7.9%. Across 2012 we added 181,000 non-farm payrolls per month, on average. Our numbers going forward have been re-benchmarked for enhanced and updated population data from the US Census. The population update indicates that the white and Hispanic portions of the population were over measured and black and Asian portions under measured.

We continue to see anemic growth, but growth, in the labor market. The very weak Q4 GDP report stands in sharp contrast to the upward revision to employment reports. Sliding government spending and Sandy influenced inventory building, partially explain this. A pattern seems to have emerged that is more robust and more important than the specific monthly jobs report data. The pattern involves slow but steady growth, anemic wage performance and volatile readings on unemployment rate. These trends have essential and largely unconsidered longer-term ramifications.

What Trend?

We are nearing the later stages of extraordinary macroeconomic stimulations. We have run large and persistent budget deficits well over $1 trillion per year. We have seen large, growing and persistent stimulative monetary policy interventions. We have a $16 trillion national debt and $3 trillion Federal Reserve balance sheet. There is every indication that political and rebalancing pressure is growing on both of these fronts. We will be embroiled in a political, contentious spending cut debate for the next two months. Likewise, pressure has been growing on the Fed to limit the escalating size of its balance sheet and monetary policy interventions. Policy intervention will be ebbing, not flowing unless we see a sharp double dip into recession, and possibly even if we do double dip.

Thus, weak numbers are likely not to improve meaningfully going forward. This leaves us to consider the erosion to labor force participation, the elevated unemployment level and wage stagnation as likely to leave long-term marks on economic health and national mood. Our stimulus phase saw GDP struggle to a lower uptrend, our unemployment remain elevated and a complete absence of wage growth. This has created persistent dissatisfaction and fragility in the population. The mass of the American population is dependent on labor income. Weak job growth and absent wage growth are a double blow to the population.

Across 2012 we saw real earnings fail to increase. We have now had 5 years with no meaningful wage growth. This comes amid very low reported, general inflation. However, given the debt overhang and the low savings of the early Twenty-First Century, we have a very unsettled and fragile middle class. This is particularly true for younger Americans and traditionally marginalized groups. We are nearing the end of expensive stimulus programs that failed to deliver robust and sustained job and wage growth. If we are moving toward less expansionary policy, we will be doing so with high government indebtedness and a fragile and agitated general public. This is rarely discussed and will assert itself powerfully and unpredictably in our polity and economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.