So goes Dean Baker’s comments on the most recent BLS jobs report. While virtually every media outlet I follow (pretty much all of them that matter, and then some) hailed the report as positive for the economy, anyone who actually went through the numbers (Calculated Risk did this as well, sans the colorful rhetoric) can see that all is not nearly as rosy as politicians, the media, and the Fed would have us believe (emphasis mine, as usual):
Those who know arithmetic were a bit more sceptical. If the economy sustained March’s rate of job growth, it will be more than seven years before we get back to normal rates of unemployment. Furthermore, some of this growth likely reflected a bounceback from weaker growth the prior two months. The average rate of job growth over the last three months has been just 160,000. At that pace, we won’t get back to normal rates of unemployment until after 2022.
That’s a long time to make ordinary workers suffer because the folks who run the economy are not very good at their job.
Again, labor force participation (not to mention birth/death adjustments) – the denominator in the unemployment rate – was responsible for a not-insignificant part of the -0.1% change m/m in the headline unemployment rate, to 8.8%, almost 1% decline from a year prior. And this is only talking about one little report. When we look around at some other numbers, things begin to look even less pleasant:
Remarkably, as the mixed basket of economic news in the March employment report was being celebrated, a major piece of unambiguously bad news was almost completely ignored. The commerce department released data on construction spending for February (pdf).
A decline of 1.4 % in spending in February, coupled with sharp downward revisions to the data for the prior two months, left nominal spending in February 6.2% below its November level. The slump in construction is virtually certain to be a major drag on growth in the first quarter. The big culprit this time is the non-residential sector – as a result of the bursting of the bubble in this sector, coupled with a fading out of stimulus spending on government projects.
Gasp! You mean to tell me ARRA/TIGER funds and projects are running-out?!?! I’m shocked, SHOCKED! I mean, don’t get me wrong, I appreciate that so many local/county roads have been re-paved around New Jersey (and elsewhere, it seems), but who the heck in their right mind thought financial, productivity, etc gains from these intentionally-temporary projects were sustainable???? Alas, it gets worse:
Other recent economic news also suggests that the economy’s momentum is more likely to slow than accelerate in the months ahead. Nominal wage growth has been virtually flat the last two months. With food and gas prices rising sharply, this means that real wages are falling, leaving workers with less money to spend.
House prices are again falling rapidly, having declined at the rate of 1.0% a month for the last three months. If this pace of decline continues, by the end of the year, homeowners will have lost more than $2tn in equity compared with peak hit in the summer of 2010. This loss of housing wealth implies a reduction in annual consumption of $120bn.
Just today, home-builder KB Homes reported less-than-stellar results, more than doubling its net loss from a year ago, leading the Company to say: “there is still uncertainty as to when a sustained housing recovery may occur.” But hey, at least the rest of the stock market is generally up, right?
In short, there is little basis for last Friday’s celebrations about the economy. The February jobs report would have been mediocre if the economy were already at normal rates of unemployment. In the context of a badly depressed economy, it is pathetic. We should be seeing jobs growth at two or three times this rate.But the real bad news is that it is more likely to get worse than better. Yet again, the business press is missing the story.
I don’t really agree with Baker’s normative language that we “should be” seeing increased job growth, as it looks like the basis for that statement is from previous recessions/depressions, all of which had different characteristics than our most recent unpleasantness. Regardless, I think attitudes are broadly too optimistic, regardless of where one looks. Optimism may be human nature, but for a trader/investor, a healthy dose of skepticism is often the differentiating factor between riding a bull-market-rally and delivering sustainable results in both up and down markets.