Sunday, February 5, 2012

Happy Days Are NOT Here Again

The employment gap persists.

Employment figures released on Friday by the Bureau of Labor Statistics seemed, on the surface, to indicate that the U.S. economy is on the mend. On cue, the stock market rallied. But the January numbers are always difficult to interpret. For starters, the "seasonal adjustment" used by bureaucrats to "smooth" the trend is far bigger in January than any other month of the year:

The reason? Temporary jobs added in the retail sector during the prior three months (the annual bump for holiday shopping) all go away in January. On an unadjusted basis, we actually lost almost 2.7 million jobs in January. But the BLS estimated that the "normal" seasonal decline should have exceeded 2.9 million. So after seasoning and stirring, presto!--the cooked number was +243K. Rally on!

As John Hussman observes wryly in his weekly commentary, "the enthusiasm over that number is almost certainly excessive." Further complicating the January report is an annual "benchmark" adjustment applied to each of the twelve monthly numbers from the prior year. Finally, we know that the January 2012 figure itself will undergo multiple revisions, ending with next year's annual benchmark adjustment. As Yogi Berra might have said, it ain't final till it's final.

So let's take a step back from the January mess and look at some longer-term trends. From January 2011 to January 2012, the U.S. economy added about 2.3 million jobs, but this still leaves us about 7 million shy of the cycle peak four years ago:

As former U.S. Labor Secretary Robert Reich points out in his blog, the working-age population has increased by 10 million since January 2008. So job creation is not keeping up with population growth (NILF stands for Not In Labor Force):

What's more, of the 2.3 million jobs added during the past year, only 1.5 million were full-time jobs (see Table A-9 here). Total real disposable income has stagnated...

...meaning that the same-sized pie is being shared by more people, leaving smaller pieces for each. Further evidence of the economy's flat-lining is the recent downturn in payroll withholdings:

Bottom line: January's phantom surge in employment must be followed by real increases in the months ahead before we can get too excited.

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