Troubles For The US Economy
We are seeing a lot of headwinds that counter the common narratives taking place right now. Due to a horrific 2020 economically, we are seeing some year-over-year (YoY) rates that make the media espouse how good things are. Unfortunately, this is a mischaracterization of what is really taking place.
For months I wrote how the economy was going to falter heading into the end of the year. This is exactly what it happening. I also stated that Powell was doing the rhetoric thing and is not really sold on tapering. A couple bad job reports later and the Chairman's stance is not so clear.
The COVID Report
This is what I am calling the latest jobs report. That is what the headlines are. We see the media claiming that the reason it is bad is because of the Delta variant of COVID.
Last month, the reason the jobs report was poor was because of all the extended unemployment benefits that were being paid. If those people would stop sitting home collecting a check, we would have a good report.
Well, the benefits were cut off and the job report was awful.
This from the BLS:
Total nonfarm payroll employment rose by 194,000 in September, and the unemployment rate fell by 0.4 percentage point to 4.8 percent, the U.S. Bureau of Labor Statistics reported today.
The market was expecting 500K which obviously is a big miss. What is really sad is, even at 500K, that is a print below the 700K which is the minimum level seen in a strong economy.
Obviously this is not a strong economy.
From the jobs perspective, there is more bad news:
The unemployment rate fell by 0.4 percentage point to 4.8 percent in September. The number of unemployed persons fell by 710,000 to 7.7 million. Both measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020).
According to the official numbers, we are still down 2 million workers. Of course, they no longer can blame the unemployment situation since those benefits were phased out in some states beginning in June and disappeared completely by the 6th of last month.
It wasn't all bad new though. Those who are working are seeing both their hours expand and the pay per hour is rising.
Average hourly earnings for all employees on private nonfarm payrolls rose by 19 cents to $30.85 in September, following large increases in the prior 5 months. In September, average hourly earnings of private-sector production and nonsupervisory employees rose by 14 cents to $26.15. The data for recent months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages. However, because average hourly earnings vary widely across industries, the large employment fluctuations since February 2020 complicate the analysis of recent trends in average hourly earnings. (See tables B-3 and B-8.)
In September, the average workweek for all employees on private nonfarm payrolls increased by 0.2 hour to 34.8 hours. In manufacturing, the average workweek was unchanged at 40.4 hours, and overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls increased by 0.1 hour to 34.2 hours. (See tables B-2 and B-7.)
The key here is for those who are working.
Labor Participation Rate
One of the overlooked factors by the mainstream media and talking heads on television is the multi-decade trend of lower participation rate.
This is not something that started with the pandemic but that did not help matters. Even when over looking what happened the past few decades, we see that we are still trailing behind what took place 20 months ago.
After seeing a peak in early 2000 of 67.3, we now see the participation rate at 61.6. This means we saw a reduction of nearly 10% over the last two decades. Also, for all the talk about recovery, we are still down from the 63.4 we saw at the beginning of 2020.
In fact, we are now at levels that were consistent in the mid-1970s, an era where many households had only one parent working.
Yet here we are again.
Velocity Of Money
The final piece that tells the story is the Velocity of Money. For those who are unaware, this is derived by taking GDP and dividing it by the M2 money supply.
Here we see the common belief that money printing will lead to an expansion of economic conditions. Unfortunately, the long-term trend is the exact opposite. Regulars readers of these articles know what is coming.
After posting a 2.1 in 1997, we now see the Velocity of Money sitting about half of what it was a little under a quarter century ago. This means that money is flowing through the US economy at a decreasing rate. This is not good for growth.
Finally, we look at the nominal GDP. This is a much better barometer than real GDP since it does not strip out inflation.
Once again, we see the same thing. The growth rate seems to drop with each iteration. The 1990s were a big step down from the 1980s.
By the same token, we see the 2010s that were lower than the previous decades. The last couple years saw a blip up as the economy grew some after going at a snail's pace in the early part of the decade. Of course, COVID messed that up although it is giving a strong 2021 YoY. That said, we will likely see 2022 return to the anemic numbers.
There are many headwinds ahead for the economy, some relative recent. However, the longer term trends are not boding well for sustained growth.
Enjoy the numbers now, they will not last long.
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