What’s Happening To Jobs In America?
It was a queasy weekend on Wall Street. It was like the day after, a client introduced me to his favorite scotch, Pinch. I was sure that my stomach would never be the same. Well, the analysts on Wall Street were experiencing a similar sensation this weekend.
You see, their supports have just been kicked out from under them. The foundation of their view of the economy has changed, and not just Wall Street. It was such a significant transition that even Washington felt the jolt.
For the past couple of years, we’ve been told this is a robust and vibrant economy and that the recovery from the COVID Lockdown is complete. Inevitably, these Pollyannas point to the strong labor market as their proof. “Look at the low unemployment,” “all those jobs openings (The JOLTS Report),” the economy must be strong, everyone who wants to work can.
Friday’s “Non-Farm Employment Report, the “Jobs” Report for October, showed that isn’t the case. This report showed a major drop in the number of workers on the “payroll” in October versus September. A significant reduction in jobs like this indicates a slowing economy. Perhaps even an economy on the verge of Recession.
But it’s worse than just a bad October. The Bureau of Labor Statistics, which complies these numbers, lowered the August and September Jobs Report. Initially, the Bureau indicated that over a half million new workers were hired during August and September (563K). Not so; they now tell us that the revised hiring number is 101K less than that (462K). That’s a reduction of 18% and makes all the difference between a growing economy on track to higher levels. And a failing economy that’s on the verge of Recession.
The Payroll Report is a foundational report around which all of Wall Street’s Macro Models are built. It ranks up there with “Corporate Profits,” Economic Growth (GDP), and Inflation (PCE/CPI) as significant benchmarks of the economy. If job growth is this weak, all the rest of the Model’s data needs revision.
Incidentally, you saw this change in attitude in Friday’s action at the exchanges, as traders were quick to conclude that such a weak jobs market meant the end of Fed tightening. The result was a major rally in stocks and bonds, as the Street is more than ready to celebrate the end of rising interest rates.
As we’d expect, declining employment translates into increasing unemployment. Here, too, are some “unexpected” new levels in those who are out of work. The Unemployment Rate rose to 3.9%, the highest level since January 2022, up 0.5% since April, many on Wall Street call for the Unemployment Rate to hit 4.0% as early as next month. It would be a significant blow to those who remain bullish on the economy.
The Ramifications
The first to feel the heat from this dramatic development in the jobs market will be the Federal Reserve. On Thursday, November 2, the Fed’s Interest Rate Committee (the FOMC) concluded their two-day meeting. They elected to hold short-term interest rates steady at 5.5%. However, in their closing statement, they noted:
“Job gains have been robust in recent months, and the unemployment rate has remained low.”
https://www.federalreserve.gov/monetarypolicy/files/monetary20221102a1.pdf
The next day, the Bureau released this report, clearly showing that “job gains” have certainly not been “robust,” at least as far back as August. And that unemployment is not low but instead is rising rapidly.
Many in the country have been willing to go along with the Fed’s Tight Money Policy as long as it didn’t slow the economy. However, if the cost of higher interest rates is lost, American Jobs that will likely prove to be a “bridge too far.” The country is already feeling the Pinch of higher interest rates in their adjustable mortgages, on their credit cards, and in other lines of revolving credit.
From now on, the Fed will find it progressively more challenging to maintain its tight money policy. Most of the Street now believes that we have seen the peak in interest rates.
The President
November marks the beginning of the 2024 Presidential Election Cycle, with campaigning already underway. It has been apparent that the President has made the strong jobs market the centerpiece of his campaign so far. Now, he will need to re-work his stump speech, as any reference to job growth will need to be modified. Instead, Biden will need to reference a more robust economy in the face of a shaky jobs market. It will, no doubt, prove to be a difficult task, especially for someone less articulate than he used to be.
Look for the 2024 Biden Campaign to pivot to other issues (foreign policy?) and away from jobs and the economy as the campaign season progresses.
Demographics
No discussion of the jobs market is complete without a reference to our changing demographics. Since the COVID-19 Pandemic, there has been a marked change in people’s working habits. Although much of this data is incomplete, and it will take some time to see all of the implications, we can point to some significant changes currently appearing in the labor market.
The most ominous change in the nation’s demographics has been the decline in our life expectancy. In the most recently reported year (2021), the CDC observed that Americans live 2 ½ years less than just five years before (2016). After steadily rising for over a century, life expectancy, a vital indicator of the nation’s health, has dramatically shortened in the past half-decade. You don’t have to be an actuary to point to the Pandemic and some of the curatives (lockdowns, isolation, medicines, etc.) as a likely cause.
But life expectancy is only one of the indicators that suggest that American workers are no longer as productive as they used to be. In the three years since the COVID-19 pandemic, over 4.6 million workers have been permanently disabled.
While those Americans who are fully employed are working 24 minutes less per week than they were before the Pandemic. Of course, 24 minutes sounds like little, but once you multiply that by the 167 million workers in America, realize how many productive hours are lost.
Finally, 580,000 workers have left their jobs. After peaking last summer at 168.3 million workers, in slightly over a year, the total number of American workers is now just 167.7 million. We’re still determining where they’ve gone. Indeed, a large portion (the boomers) have retired. Unfortunately, many others have died (remember that life expectancy), and others are disabled. But the overall picture is of a working population that is not as healthy or productive as just a few short years ago.
Overall, this latest Jobs Report was a real bombshell, revealing far more than is at first apparent.
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