JOBS | U.S. Boom Amidst Global Gloom

U.S. Job Growth Higher in December,
Unemployment still 5%. But will weak
 demand from overseas be exacerbated
 by a stronger dollar?

The just-released BLS jobs report for December [link is to the BLS News Release] shows payrolls rose by 292,000 in December. The good news will be much appreciated as Asia and Europe suffer from slack demand and pessimism.

Upward revisions for October and November reinforced the labor market strength in December, producing an average growth of 284,000 over the last three months, up from an average of 221,000 per month for the full year 2015.

Economists Underestimated December Growth. A Reuters survey of economists released an hour before the BLS data showed an average expected growth figure of approximately 200,000 new jobs.

With the upward revisions in the prior two months, that number was way off. Reuters should probably stop publishing predictions that will be contradicted within an hour. (How useful are they, really? To users and to those involved in the exercise?)

The U.S. "Misery Index" Is a Tiny 5.4 percent. We should be so happy. The unemployment rate in December was 5.0 percent for the third month in a row as inflation remains low– the November Consumer Price Index for all Urban Consumers (CPI-U) rose only 0.4 percentage point, seasonally adjusted, compared with November 2014.

Industry Detail. Professional and business services added 73,000 jobs in December, with nearly half the gain from growth in temporary help services, which rose 34,000. In 2015, employment in professional and business services increased by an average of 50,000 per month, not much below the 59,000-a-month figure in the strong year 2014.

Construction showed strong job growth for the third consecutive month. Health care also continued to add jobs in December and showed an even stronger year in 2015 than the year before. Employment in food services and drinking places increased by 37,000 in December, another bright spot.

Motion picture and sound recording industries added 15,000 jobs in December, offsetting a decline
in the previous month. Employment rose among couriers and messengers. Other sectors changed little.

Labor Market. Among people who were neither working nor looking for work in December, 1.8 million were classified as marginally attached to the labor force, down from 2.3 million a year earlier. The number of discouraged workers, a subset of the "marginally attached" who believed that no jobs were available for them, was 663,000 in December, little different from a year earlier.

The labor force participation rate, at 62.6 percent, has shown little change in recent months. The employment-population ratio, at 59.5 percent, has also changed little. The BLS has published a little noted article in December by Steven F. Hipple on the drop in the U.S. labor force participation rate since 2000. BLS counts people who are neither working nor looking for work as “not in the labor force.”  From 2004 to 2014, the percentage of such people has increased, reducing the labor force participation rate. Data from the Current Population Survey (CPS) and its Annual Social and Economic Supplement (ASEC) provide some insight into why people are not in the labor force. In the ASEC, people who did not work at all in the previous year are asked to give the main reason they did not work.

Interviewers categorize survey participants’ verbatim responses into the following six categories:

• ill health or disabled; 
• retired; 
• home responsibilities; 
• going to school;
• could not find work; and 
• other reasons. 

A quick summary of Hipple's article is: Between 2004 and 2014, all of these factors came into play, and a single factor goes a long way toward explaining what is happening–the aging of the work force. More workers are becoming disabled or retiring, at the same time as workers withdrawing from the labor force continue to cite the other reasons.

Misery Index Climbs

Wall Street indexes rise and fall but the economic misery index goes on forever as a single-number summary of what is happening on Main Street. I therefore think it is well worth watching as a measure of how the economy is doing. The index (simply the sum of unemployment and inflation rates) rose in June to 10.5, the highest level in 15 years, i.e., since January 1993, the month President Bill Clinton was inaugurated and President G.H.W. Bush left office. Under Clinton the index improved but it has recently climbed back to what it was when he took over.

Misery Index in the Last Month in Office of Recent Presidents:
Carter: 19.3
Reagan: 10.1
Bush 41: 10.6
Clinton: 7.9
Bush 43 (as of June 2008): 10.5

More (Huffington Post)

U.S. MISERY INDEX | 8.3 Percent

Fed Chairman Ben Benanke has warned Congress both about the possibility of higher inflation and a recession in the near future. Higher inflation would arise in part from costlier commodities imports (reflecting the declining value of the dollar and the higher cost of oil). A recession could be induced by falling housing prices and the impact of foreclosures and writeoffs on credit markets.

The danger of a combined higher inflation and unemployment is stagflation, measured by the so-called "misery index", which was at its highest in June 1980 at 22 percent and at its lowest in July 1953 at 3 percent. In October, U.S. inflation was 3.6 percent at a seasonally adjusted annual rate (SAAR). The unemployment rate was unchanged at 4.7 percent. The misery index was therefore 8.3 percent.

In New York City, the unemployment rate rose in October to 5.3 percent, seasonally adjusted, an increase from 5.1 percent in September 2007. With NYC inflation at 3.1 percent year-over- year, its misery index is a relatively low 8.4 percent, just 0.1 of a percentage point higher than the nation's.

NYC is still in the early stages of a housing downturn and financial sector mass layoffs. BLS reports that third-quarter "layoffs in the finance sector were primarily in the credit intermediation and related activities industry, which reported its highest number of events and separations in program history.”

U.S. DEBT | If and When It Matters

October 2, 2007–Congress has just approved raising the U.S. federal debt ceiling to a tad short of $10 trillion. What happened to the virtue of thrift and foresight exemplified by the fable about the ant and the cricket? The ant works all summer to save for the winter, while the cricket just sings his heart out. Come fall, the cricket begs in vain for food and starves to death, not having figured out the America Buys on Credit solution – buy what you want and put it on Uncle Sam's credit card until it maxes out at $10 trillion.

The debt ceiling had held at under $6 trillion from August 1997 to June 2002, when after 18 months in office President Bush asked for a higher ceiling. Three more increases took the ceiling to nearly $9 trillion, which was reached on October 2, according to the national debt clock, i.e., nearly $30,000 per U.S. citizen. The latest increase raises the ceiling more than 60 percent above what it was when the President took office in 2001.

A CIA table updated as of September 20, 2007 shows the national debt of France, Turkey and the United States clustered around 64.7 percent of GDP.

Debt, External Debt and Deficits. If Americans owe $30,000 to one another, some argue, it's just a wash. Perhaps the burden of the debt is shifted to the next generation. Perhaps the debt service encumbers future budgets. Perhaps the President is setting a bad example as Borrower in Chief. That's the way Mayor Bloomberg feels: “Too many of our conservatives in the United States want to run up enormous deficits and hope that some way, somehow, someone else will pay for it. That’s not conservatism, that’s alchemy at best, or if you like, lunacy.”

On the other hand, if the money is spent for investment, the next generation is benefiting from this investment and U.S. debt itself provides the buyers with a low-risk asset. The problem is that the money is not being spent for investment. The increases are for wars in Afghanistan and Iraq that are not going well and are dubious investments. The U.S. debt has been bought heavily by foreign central banks, allowing them to neutralize the extra dollars and keep the local currencies strong, at the expense of the dollar. A weaker dollar is not necessarily bad, because it means Americans can export more overseas. It also means that imports will cost more. This could well contribute to inflation. It also provides some hope that U.S. consumers will spend a smaller share of their income of imports and the enormous annual U.S. current account deficit will start to shrink.

U.S. external debt, i.e., public and private debts repayable in foreign currencies, shows the extent of the cumulative overhang. Debt obligations are calculated in U.S. dollars at current exchange rates. While U.S. external debt is the highest at $10 trillion, it isn’t much higher than the $8.3 trillion figure for the UK.

Top Five Cricket Nations by External Debt
1. United States $10.0 trillion
2. United Kingdom, $8.3 trillion
3. Germany, $3.9 trillion
4. France, $3.5 trillion
5. Italy, $2.0 trillion
Source: CIA, The World Factbook , updated as of 9/20/07.

To rank the cricket nations on a current basis, we can use current-account deficits, i.e., a country's net imports in goods and services, less net earnings from rents, interest, profits, and dividends, and less net transfer payments (such as pension funds and worker remittances) from the rest of the world during the year, calculated on an exchange-rate basis. The U.S. current account deficit in 2006 of $862 billion is nearly 15 times the UK's $58 billion.

Top Five Cricket Nations by Current Account Deficits, 2006
1. United States, -$862.3 billion
2. Spain, -$98.6 billion
3. United Kingdom, -$57.7 billion
4. Australia, -$41.6 billion
5. France, -$38.0 billion
Source: CIA, The World Factbook , updated as of 9/20/07. The Trade Balance is the net exports of goods and services, i.e., exports less imports. Examples of services would be legal and consulting services to overseas clients. The Current Account Balance (ranked for 163 countries) is the Trade Balance + net factor income from abroad (such as interest and dividends) + net unilateral transfers from abroad (such as foreign aid, pension payments from overseas or workers’ remittances from overseas). When the trade or current account balance is positive it is called a surplus. When the balance is negative it is called a deficit.

Why Do Debts and Deficits Matter? Americans owing money to one another is not worrisome. But Americans selling public debt to foreign countries, and adding to the debt at a rapid clip, is worrisome. Those who are holding dollar securities must be noticing that the value of these securities has declined seriously.

Meanwhile, U.S. consumers must eventually pay substantially more for imports. That must put an upward pressure on the CPI. We could be back to the 1970s problem of simultaneously rising unemployment and rising inflation, and therefore a rising Misery Index. The U.S. Misery Index hit a high of 22 percent in June 1980. Right now it is down to 5.6 percent.

Postscript - October 2008. One year later, asset values have plummeted. That should take care of the inflation pressure for a while, until balance sheets of financial institutions, businesses and individuals are back in some kind of order.