Unemployment numbers best since 2000

Unemployment Numbers Best Since 2000

There is no getting around it – we are at or reaching full employment, as the Trump economy roars along.  The official unemployment figures are not the best gauge of the US employment picture … but 3.9% is simply hard to debate with.

For years we have been pointing out that the real number to look at when considering where employment stands in the United States is the “U6” number put out by the Bureau of Labor Statistics (BLS).  This number more accurately reflects the state of employment – as it captures not just those reportedly not working but the:   “…Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.”

But 3.9% … you simply can’t fudge those numbers.  America has gone back to work!

Eight years of the anemic growth and confidence-destroying policies of the previous Administration have been swept away by robust free market policies, tax reform, and a reduction in government regulation.  It has been a complete reversal of the life-strangling government over-reach of the recent past.

Still, there are pros and cons to the employment numbers, specifically the sluggish GDP that remains below 3% despite the optimistic projections we heard in 2017.  Lets take a look:

I. Highlights of the US economy with such low unemployment numbers:

  1. “91 straight weeks of job growth”:   This is the longest streak of job gains in recorded history.  The numbers for job growth are simply staggering and they support the continued optimism for business expansion.
  2. “U6 number dropping as well”: As described above, the U6 number is a better determinant of the health of the jobs market.  While remaining historically elevated, the number has dropped from 8.0 to 7.8% year over year.
  3. “Still room for wage growth”:  Wage growth has lagged for the last decade … some academic articles suggest stagnant wage growth going back decades.  The current year-over-year is 2.6%, ahead of inflation … barely.  But in an economy with full employment, retaining employees and finding new one’s means paying more.  There is tight demand for labor in the US.

II. Areas that need improvement in the US economy:

  1. “U6 remains historically high”: Despite the continued downward trend in unemployment, the U6 employment remains stubbornly high.  It is a broader reflection of actual employment in the US – such as those working part time jobs who want, and need, full time jobs.  When you factor in the historic high numbers of those taking federal disability assistance, and that many of those could be gainfully employed, we still remain a country with large numbers of people without work who could be working.
  2. “US GDP still below 3% quarterly”:  Despite two quarters of above 3% in 2017, and the 4th quarter at 2.9%, the GDP numbers trickled back down to 2.3% for the first quarter of 2018.  That is WAY better than 2009-2016, but remains too low to make big dents in US budget deficits and personal household wealth.
  3. “We’ve said it before … we are nearing the end of a very long bull market”:  You can’t be at or near full employment and not be nearing the end of a bull market.  Although the current bull has been running thanks to historic and gargantuan artificial stimulus under the previous administration, and has been supercharged recently with pro-market stimulants such as tax reform and regulatory reductions, employment numbers like we have are suggesting the bull run has most likely run its course.

The unemployment numbers look great for hard-working American citizens.  Those job gains are well-deserved after enduring so many years of stagnation.

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Unemployment Low: Let the Good Times Roll?

Unemployment Low: Let the Good Times Roll?

Unemployment is at a 17-year low, reported at 4.1% for the month of December.  While the pace of hiring slowed in December 2017, that is natural since we usually reach near maximum employment during the holiday season – before December 25th –  and begin to taper off from there.  But for now, all signs point towards the broader labor market maintaining the unprecedented momentum of 2017.  The good times are surely rolling … aren’t they?

The reasons for this job growth are mixed, but the biggest, most important reason has been the unleashing of the “animal spirits” in the business community – optimism is driving job creation.  That optimism has been the election of Donald Trump, or, the “Trump effect”:  loosely described as the deregulation agenda, tax cuts and a pro-business environment coming from the government, in stark contrast to the previous administration.

The deregulation agenda includes lessening the amount of paperwork businesses need to comply with, expanding energy production, and eliminating obstacles to business formation and/or expansion.  The Tax Reform Act lowers rates on both businesses and individuals, and has allowed for the repatriation of billions of dollars of overseas capital.  The pro-business environment is the signal from the administration that the government is here to help, or stay out of the way, and let the marketplace and capitalism help serve the interests of the American people.  It has been an unprecedented success so far.

 I. Positive data supports employment growth:

  1. Positive employment numbers are occurring across the board. Non-farm payrolls are up 2.1 million from the end of 2016. The unemployment rate is at 4.1%, the lowest since 2000. Black unemployment is at 6.8%, the lowest on record, ever. Hispanics are at a record low of 4.9% unemployment.
  2. Industry data is equally impressive. Construction employment up 3.1% and business services are up 2.6%. Education, transportation, manufacturing, imports, exports, and the financial sector are all up over 2016 numbers.
  3. Labor participation rate for 25-54-year-old demographic is the highest since 2010. The Labor Participation rate could be a damper on employment news (see below), but not in the prime working years, where it reached 81.9% for 2017.  That is the highest since 2010, and the 5th highest on record.  Some executives have been quoted as saying that they are “over-hiring,” since once they hire a new employee, that employee may already have secured another job somewhere else – before they even start work.

II. Not all the employment data is as rosy as it seems:

  1. Wages are up … barely. Post-war economic recoveries have resulted in robust 2.5% or higher wage growth.  That has not been the case since 2010.  This recovery has resulted in sub-2% wage growth, and 2017 was no different, clocking in at 1.4%.  Strong employment numbers should see an increase in wages, as a growing business competes for limited labor availability.  It remains to be seen whether a traditional uptick in wages will occur in 2018.
  2. Labor Participation rate (LPR) remains surprisingly low. Despite an economy growing at a plus-3% rate, LPR is stubbornly low, checking in last month at 62.7%.  So, while it is surging upwards for the prime working years of 25-54, overall it is not enjoying the same positive reports.  Even while mired in the deep recession of 1980-81, labor participation remained overall at 64%.  It reached its highwater mark in the mid-to-late 90s, cresting above 67% in 1996 and remaining there until the early 2000s.  It settled around the 66% range in the middle of the 2000s and stayed there until 2008 when it began a long, steep decline.  Checking in at 62.3% in 2015, it has stabilized and remained in that range since.  While retiring baby boomers can impact that number, the greatest impact was, of course, the 2008 banking crisis, it was the steepness of the ‘08 crisis that makes retirement an unlikely cause for the LPR decline.  Having other options, such as generous government assistance through welfare and disability, has done more damage to labor participation and “working” than anything else.
  3. Industry data hides some market concerns. Commercial loan creation in the United States is virtually zero … non-shadow banking credit formation in China is near zero and could turn negative this year … auto loan default rates in the U.S. are higher than in 2008 … without credit creation, we will see marked declines in economic activity.  How do we sustain the unprecedented “Trump effect” if bank lending for commercial projects is slowing globally?  This is not a harbinger of doom, but a reminder that the data, however positive it may seem for the market and the economy, is not completely immune to negative effects.

The improvement in our employment numbers – combined with the rapid acceleration in GDP and other critical indicators – is the direct result of the conservative policy making of the new Administration.  The “Trump effect” has been pro-growth and pro-business, and that has meant an improving labor market.  But GDP performance and the market are always interrelated, even if there is a delay in their congruence.  Bottom line, the good times may be rolling, but caution is always the prudent course in an ever-ascending marketplace.

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Income Inequality

Income Inequality? That’s a Good Thing!

It goes without saying that despite the myriad of problems around the world, the U.S. economy seems stable and our stock market remains buoyant.  We have catalogued all the reasons that it should not be, and that the gains are essentially artificial, but that has not detracted from some simple facts:  unemployment measurements are down, the stock market is up, and the economy is growing.

Yet if you read the pundits and watch cable news, they lament:  (A) “the forgotten man” – those in rust belt cities where jobs are now scarce;  (B)  “secular stagnation” – the belief we have entered a period of low to no growth in our economy;  (C) “the new normal” – that high deficits, gargantuan debt, and diminishing prospects are what is in store for America’s future; (D) “income inequality” – the belief that our tax system (despite how high it is) has not “spread the wealth” around like it used to;  and (E) “the end of social mobility” – the belief Americans will do better the next generation than they did in the last generation, that we are no longer “Moving on Up”… as George Jefferson would say.


America remains the “Shining City on a Hill” and a place where the rest of the world is desperate to get to!

Let’s “correct the record” on the naysayers who question the American way of life – capitalism works!:

1)            Is there truly a “Forgotten Man?   This was a favorite theme on the campaign trail for Trump.  It has been the subject of much scholarly debate, and it was in many respects the reason for his victory – white, blue collar voters in the Midwest… the so-called “forgotten man” (men and women)…  provided the votes for Trump in an effort to make America great again.  But America is great for many reasons, and in economics, that means a belief in capitalism.  Non-competitive industries are most likely not coming back, whether because of automation or a product is more cheaply built abroad.  A trade war will be costly and usually end up costing more jobs.  The answer, as shared by John Tamny of Forbes, is to do what immigrants did 100-150 years ago.  Imagine leaving all that you have, all that you know, to go on a ship to a new world where no one spoke your language, just so you could have a chance to make something of your life.  That story only applies to America.  Don’t have a job?  Move.  Don’t like your job?  Find something else.  Not skilled in other professions?  Get skilled.  Opportunity awaits, you simply have to find it… and take it.

2)            Secular stagnation is the result of bad policy, not a permanent condition.  Is it true that America, the greatest economic engine in the history of the world, can no longer grow as we have in the past?  Have the Chinese passed us on the economic growth highway for good?  Those same questions were asked about our competition with Japan during the high-growth late 1980’s, and we can see where that went.  If you accept that we are in an era of low to no growth, you should understand it is caused by government policies, not a change in human nature.  People live and die… homes, buildings, places of business decay and need replacement… innovation can change the tools in the marketplace… the American economy is designed to grow.  The only “stagnation” is government created:  high taxes, easy welfare access, easy disability access, high deficits, significant government debt – the economy is stagnant due to progressive economic policies which have damaged the great American jobs machine.  Remove the bad policy, and the economy will explode!

3)            This is NOT the ‘New Normal’.  High deficits, gargantuan debt, diminishing prospects… should we accept this as the “new normal”?  Americans will not and should not tolerate a declining economic environment.  As George Patton once said: “… That’s why Americans have never lost nor will ever lose a war; for the very idea of losing is hateful to an American.”  That quote can apply to our economic circumstances as well.  The very idea of a failing economy is “hateful” to a real American.  The sub-2% growth of the Obama Era is not enough to fix our economic problems, reduce our debt, nor satisfy the American people.  We are not living in a period of “the new normal” because Americans simply won’t accept it.  Remove bad government policy, and Reagan-styled growth is right around the corner.

4)            Income Inequality in a free, capitalist system is not a bad thing… IT’S A GOOD THING!   It is important to note this is not the discussion regarding gender pay gaps, this is not gender specific but about the alleged, mythical inequality in pay up and down the upper, lower and middle classes.  This is about the young man or woman just starting out and who aspires to live in the big house or drive the nice car.  Those aspirations still remain part of the American ideal.   Most people when they first join the workforce don’t own anything, don’t have any money, and they don’t possess any assets.  They are young and just getting started.  Yet they are included in all of those surveys regarding income inequality.  The same is true of the end of the age spectrum – many may pass down some form of assets, but most are spending down assets in medical bills and costs of living adjustments as they near the end of life.  The teenager working his/her first job at McDonalds, or anywhere for that matter, has the ability to move up as they age.  Many of these jobs however are at risk in the ill-begotten pursuit of income “E”quality, higher minimum wage laws, and every other form of government intrusion into the marketplace.  Without higher paying jobs, people would not aspire to improve their condition, work harder, attempt to innovate or learn to get a promotion… in other words – income “IN”equality is capitalism that is working – THAT’S A GOOD THING!…  income “E”quality is socialism, or worse.

5)            Social Mobility is available to all, but you have to take advantage of it.  There is a unique irony to the reporting on social mobility, suggesting that other countries have more “social mobility” than the United States.  That is usually cherry-picked data – the irony being most of the countries listed on such a list including Finland, Denmark, Benelux countries (Belgium of course needed bailing out) …  it is easier to move up the social ladder when highly taxed countries do not have the highest or lowest income brackets – therefore, in America, a move up is a jump from poverty level to say $28,000 per annum, while in Switzerland the jump is only $25,000 to $28,000 to be characterized as a change in social status.   Social mobility has also slowed in the U.S. due to the fact that the economy has slowed… get the government out of the economy, and social mobility is a non-issue.

We have a long way to go to fix some of these issues – we have spent the last 8 years diminishing the value of work, and allowing people to blame others for their problems.  That is not how Americans face a challenge.   We roll up the sleeves and we get to work… not blaming others, but taking accountability for ourselves.

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