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The U.S. Is At Full Employment, But Other Data Show Real Problems

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by: Elliott R. Morss
Summary

Trump says the US economy is in great shape.

True. The unemployment rate is low.

But when other data are examined, real problems are apparent.

Introduction

Trump:

"In just over two years since the election, we have launched an unprecedented economic boom - a boom that has rarely been seen before. There has been nothing like it…. Our Economy is setting records on virtually every front - Probably the best our country has ever done."

The President and his supporters claim that with the unemployment rate at 3.7%, the economy is strong. Others say no, many are hurting. A closer look at the numbers suggests there are real problems.

Key Metrics

Question: How does wage growth compare with GDP growth? Lagging wage growth would suggest that labor is not keeping up with other sectors of the economy.

The Bureau of Economic Analysis (BEA) collects data on GDP in constant dollar terms. And since 2007, the Bureau of Labor Statistics (BLS) has collected average weekly wage rates in real terms for a large number of industries.

Since 2007, real GDP has increased by 19.1%, or at a compound annual growth rate of 1.6%. Over that same period, private sector real wages grew only 7.4% or at a 0.7% annual rate. So wages are lagging.

Why is this happening? My answer: Entrepreneurs are regularly faced with deciding on whether to hire workers or invest in labor-saving technologies. And as I have noted, they are increasingly choosing labor-saving technologies.

So how is this consistent with the US being at full employment? It appears the labor markets have become soft. That is, workers are taking jobs that are overall far less remunerative than jobs in the past. The days of working for the same company for life with great fringe benefits are over.

The Numbers

Table 1 provides data on the change in earnings and employment for the largest US sectors. There are several points worth noting. The table indicates that earnings have not grown as rapidly in any of these sectors as GDP has grown. In fact, earnings have fallen in the non-durable goods sector. Jobs are falling in the goods producing sector. Note the decline in construction and manufacturing jobs. Government jobs have grown but only slightly.

Table 1. - Earnings and Employment (in thous.), 2007-2018

Source: Bureau of Labor Statistics

Retail

The retail sector has been severely weakened by e-commerce. As noted in Table 2, department store employees have fallen by 27% while employment in "non-store retailers"/e-commerce sellers grew by 30% in the 2007-18 period.

Table 2. - Retail Trade: Earnings and Employment (in thous.)

Source: Bureau of Labor Statistics

Information

The changes taking place in the information sector are striking. Note the employment losses in the "paper" and radio industries and the dramatic increases in both software publishing and data processing.

Table 3. - Information: Earnings and Employees (in thous.)

Source: Bureau of Labor Statistics

Education and Health: The Two Strong Service Industries

The numbers presented above suggest weakness in many service industries. But as Table 4 suggests, the education and health sectors continue strong. In both sectors, employment is growing rapidly. The BLS did not collect data on education earnings, but the National Education Association, the largest teachers' union in the country estimates weekly earnings in education at $877.

Table 4. - Education and Healthcare: Earnings and Employees (in thous.)

Source: Bureau of Labor Statistics

Other Sectors

Table 5 lists sectors with the greatest employment gains and losses since 2007. It is notable that in the sectors with the greatest employment growth, wages are low and not growing. Leisure/hospitality is an exception, but wages are low in this sector. The growth in management consulting is probably a reflection of hiring part-time rather than full-time managers.

Table 5. - Rapidly Growing and Declining Sectors: Earnings and Employees (in thous.)

Source: Bureau of Labor Statistics

Conclusions

The aggregate numbers normally relied on to judge economic performance look good. But to understand what is really happening, one has to examine individual industries. And there serious problems are apparent.

Labor earnings are not keeping pace with GDP growth. And within certain industries, there have been large job losses. Labor-saving automation is largely to blame as evidenced by department stores where jobs are down 27% since 2007.

Manufacturing used to be the "poster boy" for the effects of labor-saving automation. But the data above suggest that labor-saving technologies are impacting the service industries as well as the goods industries.

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. I have no business relationship with any company whose stock is mentioned in this article.