The jobs number released early in December are telling a story the government doesn’t want us to read.
U.S. nonfarm payrolls came in at 210k jobs vs the 550k jobs that were expected to be created. That is a pretty big miss, not to mention the fact that the previous months numbers were also revised downward. Despite the lack of job growth over the past few months the unemployment rate dropped from 4.6% to 4.2%. While the labor force participation rate moved up from 61.6% to 61.8%.
The slow growth in jobs continues to put emphasis an on the weakness of the U.S. economy. We truly aren’t creating any new jobs, only reestablishing some of the ones that were lost during the beginning of the pandemic.
Take this chart of U.S. nonfarm payrolls for the jobs created in a given time. We lost over 20 million jobs in May of 2020. Over a year later we have only seen a return of roughly 16 million of those jobs. Note these are returning jobs. That still leaves around 4 million jobs needed to get us back to the level we were at pre 2020. You can also see in the chart how the growth of jobs has slowed, further indicating slowdowns in the overall economy.
It is really interesting when you look into the jobs numbers themselves because the majority of jobs that were created are in the services sector. America is an economy of consumption not production. In a healthy economy you have to make stuff equal to the stuff you consume otherwise what do you really have?
We also hear people bragging about the slight uptick in the labor force participation rate. Looking at the chart above you can see we are still missing roughly 2% of the labor force that was active before 2020. Not to mention the fact that the rebound in the number from its lows aren’t even close to the previous trend lines. We are already facing large demographic issues that are hampering economic growth. This consistent drop in the workforce will continue to impact our ability to produce strong real growth.
This final chart shows the U.S. unemployment rate which has been trending downward as expected with the reopening of the economy. I want to point out though that while we are nearing relatively similar levels in unemployment to what we saw prior to 2020. Labor force participation has not responded in a similar way.. These two trends can be seen at odds with each other. Here in lies a point about how government numbers can be "manipulated" or misconstrued.
How can we see a decrease in unemployment when participation in the workforce is not at previous levels? Wouldn't that mean you would see a higher level of consistent unemployment to parallel that of labor force participation?
The unemployment number does not count people who are classified as no longer looking for work even though they are eligible to work. Eligible to work means and includes the working age of the population. This way of calculating the data shows how you can see decreasing unemployment rate while still seeing lower then trend labor force participation. As long as people who are looking for work are returning to work unemployment can trend down. Regardless of how many people are truly participating in the workforce. Having a lower labor force participation can hint as to why there are so many open jobs that do not seem to be being filled.
The Fed's mandate is full employment which attempts to account for both of these numbers. When they see a decrease in unemployment that means the economy is strong and people are finding work. They see a slight increase in labor force participation then that is a good sign that people are returning to work. I find it hard to believe that they ever take a step back to analyze the data to see what it could really be saying.
There are a few other numbers that were released that furthered the Feds strong outlook on the economy but I'll skip over the specifics for now. Bottom line is with these two numbers showing a "positive" trend the Fed is full steam ahead with accelerating the pace of taper, followed by rate hikes. Despite the jobs number coming in extremely weak they see enough positive signs to further their policy direction.
This direction is signaling a huge policy error from the Fed. Tightening monetary conditions in an economic environment that is showing signs of slowdown/weakness will accelerate any weakness. Now that they think inflation isn't transitory they believe they have to fight it. Even if fighting it means it will destroy the economy with higher rates.
The longer QE is done the more the system gets hooked on it.
I'm planning on going into QE more in depth in future posts so stay tuned for that. In the meantime we can expect the markets to move sideways to down as the Fed furthers their policy intensions. Signals are flashing economic slowdown incoming and recession imminent but our trusted experts are staying the course..