Ignore The Bulls And Bears - See The Key Trend In The Jobs Numbers

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The jobs report confirms that the US economy grows slowly, and is slowing.

It gives no evidence that the US is accelerating, or that the Fed will raise rates.

If it continues slowing at this rate, we will have a recession in 2019.

High equity valuations make no sense in this slow motion economy.

Beware of analysts who sell stories about exciting noise, hiding the boring but important trends.

The usual way to see jobs growth. Slow and slowing.

The September Employment Situation Report tells the tale of a slow expansion that continues to frustrate both the bulls (boom soon!) and bears (recession now!). The above graph is from the BLS Highlights.

  • Total nonfarm payroll employment rose by 156,000 in August, compared with an average monthly gain of 192,000 in the past 3 months, 178,000 in 2016, and 229,000 in 2015.
  • "Little change" was the theme of this report, used to describe almost everything, except for those metrics that were "unchanged".
  • The average weekly earnings of production and non-supervisory employees in the private sector rose 2.0% YoY, slightly above the inflation rate of 1.1%. That's unimpressive growth for this late in the business cycle, and gives a different message than the extraordinary low 5% unemployment rate and unemployment insurance claims numbers. Businesses are not bidding for workers; America still has a large reserve army of the unemployed.

Better ways to look at employment

The usual picture shows growth in the number of jobs. Since America's population growths, this makes the performance of recent presidents look good. Obama created more jobs in a month than Washington did in eight years! We should look instead at the percent growth in jobs. The two cycles since 2000 have been pitifully slow.

YoY percent change in nonfarm payrolls - NSA.

YoY percent change in nonfarm payrolls (NYSE:<a href='https://seekingalpha.com/symbol/NSA' title='National Storage Affiliates Trust'>NSA</a>)

Is the number of jobs the most useful metric? "Jobs" become a vague term as corporations shift to a part-time and contingent work force. Instead let's look at what employers pay for: hours (approx. 80% of private sector workers are paid by the hour).

The bottom line: total hours of private sector hourly workers has risen 0.5% per year during this cycle (from the previous peak in Dec. 2007), 1.9% per year during this expansion (from the June 2009 trough), and 1.2% during the past 12 months. Pitifully slow compared to past cycles, and only slightly faster than population growth of 1.1% during the past year (civilian non-institutionalized workers aged 16+) -- mostly from immigration. No acceleration despite the frequent and confidently stated predictions of a "take off" and a return to "normal" growth.

Average weekly hours of hourly workers in the private sector.

Percent change YoY in private sector hours worked by hourly workers

Each of those little monthly squiggles generated clickbait headlines (keeping us ignorant of the actual trend). Boom! Bust! Euphoria! Despair! That's what sells advertisements and newsletters, and generates clicks.

Where are the jobs?

Change in Jobs by Sector - September 216

Look at the 12 month change in the sectors giving blue collar works middle-class incomes: Mining and Logging: -110,000 jobs, Construction: +208,000, Manufacturing: -61,000 jobs. Not much growth in a nation of 320 million.

But we have the hyper-growth of the information sector, our hope for the future! Unfortunately that's a myth. In the last 12 months it created only 4,000 new jobs -- a growth rate of 0.14%. Programmers are not the job of the future, except for a few.

How does this new info fit with recent economic news?

For the answer, see this morning's Econoblog post: See The State Of The Economy, A Vital Context For The Jobs Report.


The US economy -- like the world economy -- remains locked in slow growth, and is slowing. Ignore the bulls and bears that conceal this (stability is bad for their business). This slow but stable growth is remarkable considering the number of economic and political shocks since 2009.

Despite the bears' characterization of this cycle, it is an expansion. It is no longer a "recovery", we have grown past the previous peaks in almost every economic measure. Slow growth is not a "depression".

Slow growth seldom creates the imbalances and imbalances that caused most recessions in the post-WWII era (an era now ended, as a new era slowly emerges). So this expansion has lasted 81 months, the 7th longest since 1857 and the 4th longest of the 11 cycles since WWII (see the NBER dates). It might run a long time.

Will the Fed raise rates? We can only guess (I doubt that the Fed governors or staff can say for sure). They are desperate to raise rates -- giving them the ability to cut rates in the next recession. But they know it would be a serious error to do so while real GDP grows at 2.2% -- only 0.4% per capita.

Investment gurus often say the Fed must "normalize" rates, which is probably false. There is little evidence that the "natural" rate of interest is above current rates. T-bill yields are set by the largest free market in the world: today's rates range from 0.33% for 30-day bills to 2.46% for 30 year bonds. Also, the Fed has not used its tools to affect rates since QE3 ended in October 2014 -- despite frequent claims that the Fed is holding rates down. They have made no changes in reserve requirements or the discount rate. Most significantly, their balance sheet has not increased (they can directly depress rates by buying bonds in the open market).

Eventually something will tip the US economy into recession or boost it into strong growth. Only our imagination limits the list of things that can do so. This slowing will do so eventually, if it continues. But as for now I see nothing on the horizon that seems likely to do so. Just the usual fears of the hysterics that keep our headlines exciting -- and usually false.

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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