Saturday, September 6, 2014

Employment Update: August 2014

Numbers for August, released by the Bureau of Labor Statistics yesterday (link), produced an interesting mix of reaction. Some observers deplored the results, some suggested that BLS hadn’t gotten them right, yet others pointed out that uneven performance of this indicator is a normal phenomenon.

The BLS reported that 142,000 jobs were created in August. Those who expected at least 200,000 were disappointed. At the same time, BLS also revised July results downward from 209,000 to 181,000, a loss of 28,000 jobs. Therefore the net gain in August was just 114,000 jobs.

The Retail sector lost 8,400 jobs—once more underlining that consumer confidence may not be as robust as assumed. The Information sector (read communications media) lost 3,000. Manufacturing employment remained unchanged from July. Mining and Construction both produced fewer jobs than in July. The pattern is familiar by now. The basic industries are still sluggish. All the gains are coming from the Service categories.

Herewith the monthly chart, with July colored tan to indicate that results for the month were revised downward:

Data showing annual results and an annualized projection for 2014 are next:


Last month the 2014 projection was 2.774 million for the year. This month the projection has dropped to 2.598 million because of the July changes and the lackluster August results. The projection for 2014, however, still remains the best since 2007.

In May of this year, the economy recovered the loss of 8.663 million jobs lost in the Great Recession. Since then I’ve been tracking recovery of new jobs not created while we were making up losses. To keep up with the growth in the workforce, a number driven by demographics, we need to create 87,300 jobs every month. Once that number is met, anything in excess may be counted against what I’ve labeled the Growth Deficit. That number stood at 6.635 million in April, just before we erased the losses created by the Great Recession.

As of July, we had already recovered 7.1 percent of that deficit. The numbers were good enough in August to change that recovery rate to 8.9 percent, as shown in the last graphic:


The trend is still positive, but some kind of “new normal” seems to try to deny the eager observers of the economy the triumphant feeling that we’re heading for what we really like: “irrational exuberance.”

Wednesday, September 3, 2014

PCE: The Real Measure of Confidence

We hear it said quite frequently that Personal Consumption Expenditures represent 70 percent of Gross Domestic Product. Such a rough approximation is false, by and large. The last time the PCE was at or above 70 percent was in the 1929-1939 period, thus roughly coinciding with the Great Depression. Thereafter it dropped into the 50s and has been gradually rising in percentage since, as illustrated in the following table:

PCE as % of GDP
Year
79.9
1932
54.9
1942
59.7
1952
61.6
1962
60.0
1972
61.0
1982
64.5
1992
67.5
2002
68.0
2012
68.1
2013

What this tabulation teaches is that PCE is, these days, closer to “two thirds of GDP”—and that when consumer confidence really tanks, the numbers start going up and come close to touching 70 percent. Notice also that the lowest number in that table comes in 1942—when GDP had swollen with expenditures on war. But whether we are nearer 60 or closer to 70 percent, the obvious is staring us in the face. It is what ordinary people spend that makes an economy. And these expenditures are driven by personal necessity and—if PCE is growing at rates above population increase—spending is also driven by personal choice. Such is still the case for this period: the U.S. population grew at a rate of 0.9 percent annually (1999-2013) over against PCE growth at 2.2 percent. (All of the numbers shown here, by the way, are based on real, meaning inflation-adjusted, dollars.)

When people spend money, corporations begin to hire and invest. When demand is sluggish, the economy—unless artificially stimulated by government expenditures—will reflect the public’s lack of confidence.

This, of course, suggests that incentivizing corporations—as by keeping interest rates artificially low—only incentivizes speculation, not investment or hiring. Therefore the Fed, and thus monetary policy, is never enough to produce confidence in the real public, which controls two-thirds of the economy, and only stirs up those at the 1 percent level who are into investing and such.

The following chart shows the relationships between PCE and GDP for the recent 2000-2013 period:


In this period, the GDP generally lags PCE, growing at a lower rate (2.0% 1999-2013 versus PCE which grew at 2.2% in the period). The GDP appears to be waiting; and even when growth of the PCE signals rising confidence, the GDP is following it sluggishly at best. In the most recent survey of consumer confidence, conducted by The Conference Board, Consumer Confidence was up 2.1 points but CEO confidence was down by a point. That illustrates my point. The CEOs are still waiting for a more robust sign of growing public confidence. Meanwhile the markets are reaching new highs—which reflects the confidence of the rootless 1 percent that lives in the clouds.