The State Of The United States Economy: Good, But Not Understood

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by: John M. Mason

Summary

Jobless claims in the United States are now at a 49-year low, reflecting the strength of the overall economy.

However, this strength in the economy is subject to "new" forces that are impacting corporations and their transition into the modern era of the Information Age.

However, we must better understand these "new" forces and react to them rather than remain stuck in our old economic models that focus too much what the world once was.

On Thursday, the US Labor Department announced that the number of Americans filing applications for new unemployment benefits fell to a seasonally adjusted level of 203,000.

This is the lowest level this number has fallen to since 1969!

A less volatile measure of this series is the four-week moving average of the claims, which dropped to 209,500…again, a 49-year low.

The latest unemployment rate…for July 2018…came in at 3.9 percent.

And, the labor force participation rate remained at 62.9 percent…it has varied right near 63.0 percent over since September 2013, 5 years ago.

It can be argued that in terms of the labor market, the economy is in pretty good shape.

Other measures of economic strength, however, do not quite present the same optimistic view of the economy, as do the labor market statistics.

But, maybe this is a sign of the times…a sign of the transitions that the economy is going through…a sign that things are different now.

For example, I have written quite a lot about the "new" Modern Corporation and the focus this new structure brings to the economy, concentrating on “intangibles” and financial engineering, rather than production and “tangible” capital goods.

I have examined corporate profit margins and how the economy seems to be bifurcating along the lines of the “new” and the “old.”

Things have changed, dramatically, and in ways that are difficult to pick up using aggregate macroeconomic measures.

Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, has recently spoken on the need to move away from macroeconomic modeling and its concepts and look at more and more data from a more microeconomic view of the world.

The point is, our approach to understanding the performance of the economy must change…primarily because the structure of the economy has transitioned…or, is still transitioning…into a new era.

Rather than looking just at the macro-performance of the economy, we need to try and understand other forces that are working themselves out.

For example, let’s look at the labor force participation rate. Over the past 50 years or so, there has been two major shifts in the labor market that has impacted the labor force participation rate.

In the 1960s, with the growth of feminism in the United States, more and more women began to enter the work force that is they became more employed outside the home.

In 1969, the year highlighted in the third paragraph of this post, the labor force participation rate was less than 60.0 percent.

By, November 1973, the rate had jumped up to 61.0 percent, a number never achieved before. And, then the participation rate rose steadily over the next 27 years or so, reaching a peak of just over 72.0 percent in January 2001.

And, then the decline set in…dropping back down to around 63.0 percent in the last half of 2013.

What changed?

Well, the timing of the decline in the labor force participation rates is closely tied with the bursting of the dot.com bubble in the stock market, which occurred in the year 2000.

The times changed. Whereas in the previous twenty years, corporations had been hoarding labor, not releasing people in economic recessions, and keeping them “on the books” because of the labor market pressures that the corporations felt in the 1990s. Whether the people employed exactly fit the jobs that were needed was not the point. The point was to have the labor aboard for the times they might be needed.

The stock market break seemed to change all that. The labor market changed after that time, with the labor force participation rate dropping steadily thorough the 2000s, and continuing to drop during the Great Recession up until the last half of 2013, when this measure plateaued.

It should be noted that whereas the rise in the labor force participation rate after 1969 was primarily due to women entering the labor force, the drop in this measure since 2001 has seen more men leaving the labor force than women. Obviously, a major shift in the structure of business occurred during this time.

Right now, businesses are having problems finding workers to fill the jobs that they have open. There is a mismatch, it seems, between the skills that are needed in today’s workforce and the skills possessed by many of the people not seeking work.

If the “new” Modern Corporations are more focused upon “intangibles” and financial engineering, than their predecessors, then workers…or, “potential” workers…need to focus more on the skills that would allow them to be productive in positions working on “intangibles” or in positions dealing with financial engineering.

Furthermore, governments’ need to focus more on providing programs that will help workers…or potential workers…gain these skills. Just producing programs that stimulate the economy in hopes of companies hiring people back into their “old” jobs is not going to work in this world. So, the way government approaches employment must also change.

So, it is good news that US jobless claims are at a 49-year low. But, things are not as good as they could be.

Businesses, apparently, have a multitude of job openings. Deficit spending on the part of the government and expansionary monetary policy are not going to fill these openings. We need to understand the microeconomics of the situation, because that is where the possible solutions are.

We won’t be able to address these possibilities, however, if we don’t try to understand more fully the changes that have taken place and the structure being constructed in this “new” Information Age.

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.