Contributed by Rohit Goel (rgoel441@gmail.com)
The June 2016 Jobs report was so strong that it pushed US equity indices to their lifetime highs. But was it really that strong? Being the natural sceptic that I am, I decided to investigate. Of late, I have been paying attention to the breakdown of employment numbers by age.
Comparing the June 2016 data with the May 2016 data (http://www.bls.gov/news.release/pdf/empsit.pdf, Table A-9) immediately confirmed my suspicion – the critical categories of 20 to 54 years had cumulative job losses of 39k, and the only driver of the report’s strength was job gains of 259k in the 55 years and over category. Intuitively, the jobs created in the latter category are mostly lower-quality jobs – but more on this later.
But what if this report was an outlier, and the labor market has been improving, as the government, central banks and mainstream media continue shouting from the rooftops. So I decided to expand the scope of my investigation. I compared the current report with the June 2006 report (http://www.bls.gov/news.release/archives/empsit_08042006.pdf, Table A-6), a good year or so before the financial crisis broke. I was stunned by what I found:
| In ‘000s | Jun-06 | Jun-16 | June ’16 10Yr Change |
| Total, 16 years and over | 144,363 | 151,097 | 6,734 |
| 16 to 19 years | 6,270 | 4,864 | (1,406) |
| 20 to 24 years | 13,842 | 14,023 | 181 |
| 25 to 34 years | 30,988 | 33,662 | 2,674 |
| 35 to 44 years | 34,518 | 31,543 | (2,975) |
| 45 to 54 years | 34,035 | 32,588 | (1,447) |
| 55 years and over | 24,696 | 34,459 | 9,763 |
| Civilian non-institutional population | 228,671 | 253,397 | 24,726 |
| Civilian labor force | 151,321 | 158,880 | 7,559 |
| Employed | 144,363 | 151,097 | 6,734 |
| Part time for economic reasons | 4,261 | 5,843 | 1,582 |
| Unemployed | 6,957 | 7,783 | 826 |
| Not in labor force | 77,350 | 94,517 | 17,167 |
Over the last 10 years, the categories of 20 to 54 years had cumulative job losses of 1.6 million, and the net gain in jobs was driven primarily by the 9.8 million gain in the 55 years and over category. This seemed the opposite of what should happen in a healthy economy, where there is a greater need for young & mid-career professionals with the right skills & education while the older workers transition into retirement.
I also found evidence that most of the jobs created were lower-quality jobs: the significant job gains were in ‘Education and health services’, ‘Professional and business services’, ‘Leisure and hospitality’ and ‘Trade, transportation, and utilities’, while ‘Manufacturing’, ‘Construction’ and ‘Information’ shrunk over the last 10 years (Table B-1). The first 4 sectors (with the exception of ‘Professional and business services’) have much lower average hourly earnings compared to the last 3 (Table B-3).
To test whether something had changed drastically over the last 10 years, I decided to go back another 10 years and look at the June 1996 report (http://www.bls.gov/news.release/history/empsit_070596.txt, Table A-8). Unfortunately, BLS did not report the employment numbers by age at that time; so I had to back into the numbers using the number of unemployed persons and unemployment rate by age. This was the result of my analysis:
| In ‘000s | Jun-96 | Jun-06 | Jun-16 | June ’06 10Yr Change | June ’16 10Yr Change |
| Total, 16 years and over | 126,148 | 144,363 | 151,097 | 18,215 | 6,734 |
| 16 to 19 years | 12,376 | 6,270 | 4,864 | (6,106) | (1,406) |
| 20 to 24 years | 11,461 | 13,842 | 14,023 | 2,381 | 181 |
| 25 to 34 years | 27,310 | 30,988 | 33,662 | 3,678 | 2,674 |
| 35 to 44 years | 30,421 | 34,518 | 31,543 | 4,097 | (2,975) |
| 45 to 54 years | 29,995 | 34,035 | 32,588 | 4,040 | (1,447) |
| 55 years and over | 14,585 | 24,696 | 34,459 | 10,111 | 9,763 |
| Civilian non-institutional population | 200,459 | 228,671 | 253,397 | 28,212 | 24,726 |
| Civilian labor force | 133,669 | 151,321 | 158,880 | 17,652 | 7,559 |
| Employed | 126,610 | 144,363 | 151,097 | 17,753 | 6,734 |
| Part time for economic reasons | 4,301 | 4,261 | 5,843 | (40) | 1,582 |
| Unemployed | 7,060 | 6,957 | 7,783 | (103) | 826 |
| Not in labor force | 66,790 | 77,350 | 94,517 | 10,560 | 17,167 |
Here are my key take-aways:
- In the 1996-2006 period, 14.2 million jobs were created in the 20 to 54 year category and 10.1 million jobs were created in the 55 years and over category; so job creation in the younger category exceeded the older category by a good 40%. As mentioned earlier, the corresponding numbers for 2006-2016 were -1.6 million and 9.8 million.
- For 1996-2006, the number of employed increased by 17.8 million (with persons working part-time for economic reason almost unchanged) and the number of unemployed down slightly. The corresponding numbers for 2006-2016 were 6.7 million (with persons working part-time for economic reason up by 1.6 million) and 0.8 million.
- For 1996-2006, the number of people not in the labor force increased by 10.6 million, while for 2006-2016 that number jumped to 17.2 million. An ageing labor force (as suggested by the smaller increase in Civilian non-institutional population in 2006-2016) with more people retiring could explain part of this, but there are other more problematic factors at play here such as an increase in the number of discouraged workers).
It is clear that the most recent decade has been much worse for the American labor force than the previous decade on most metrics. The economy is not creating good-quality jobs for the younger categories, and the older category is having to work longer than they thought they would/take up lower-quality jobs.
There could be several reasons for the latter – they are earning much less interest on their savings than they thought they would, their college-educated kids with huge student debts and no job to show for it have moved back home with them etc. No wonder that despite “full employment”, the growth in GDP, Industrial Production and corporate earnings (even after record buybacks and non-GAAP window-dressing) are anemic.
So what is the cause of this? The short answer is the Fed’s over-reach by aggressive deployment of monetary policy experiments, and the politicians’ failure to formulate and execute sound fiscal policies that could promote growth. I give credit to the Fed for taking some bold steps during the financial crisis, and their actions likely prevented a complete meltdown of the financial system.
But they should not have continued doing it for 8 years, and they certainly should not have doubled down every time it was clear that their policies were not working. Assessing the performance of the Fed against their dual-mandate, they get a grade of “Z” on maximizing employment (as the above analysis demonstrates) and a grade of “Q” on ensuring price stability (with rents, medical and food costs rising much faster than wages) – the insightful reader will know the reason for those grades instead of straight “Fs”! Bill Gross, in his latest investment outlook, also makes a case that the Fed worships false idols.
Now what happens next? A large majority of the country is outraged at the politician- and Fed-engineered bail-outs of Wall Street (which was largely responsible for the economic crisis), while they lost their jobs/had to take up lower-paying jobs and can barely pay their living expenses. The middle class is shrinking at a record pace and economic inequality has never been higher. These were some of the same reasons that led the average Britisher to thumb their nose at the establishment elite by voting to leave the EU. The US equivalent of that would be the victory of Donald Trump in November – an increasingly likely scenario!
