Data Point Versus Data Series
Its important to recall that economic data – indeed, any data series – is not a snapshot, but a moving picture. And even moving picture requires context.
Let’s use a few specific examples.
We know, for example, why the unemployment rate is so low: NILFs.
(Not-in the–Labor-Force) The common (but incorrect) answer simply assumes
many more people are getting jobs. The reality is that people have been
dropping out of the labor force at an unprecedented rate. 5% unemployment
reflects a dearth of job seekers, not a plethora of new jobs.
Some of the talking heads have even
touted the drop in long term Unemployed to 17.8% from over 20% in May (BLS Table A-9)
as a positive. How can that be bad, you may wonder? The answer is, it’s all
relative: Historically, an unemployment rate of 5% is typically accompanied
by long term jobless rate of 10.7% -- not 17.8%, according to the same EPI release that was widely touted as revealing better
Indeed, let's have a look at that improving
quality of Personal Income data: After nearly 4 years of below
average wage expansion, we see for the first time post-recession, that
there is now greater growth in above average wages.
Taken in isolation, this appears to be a positive development. Let's use what
we know to be true to see if we can determine what this might mean and why.
First, consider the reason for the
shift. Since the end of the recession, we have seen a hiring surge in
low-paying jobs: retail, leisure, hospitality, and fast food
industries. Many of these new, lower-wage workers had been laid off from
higher paying jobs with better benefits (read: health care). Those people who
were willing to take these lesser paying employment were doing so out of
necessity. We also hear anecdotally about many of these low wage jobs are
actually a second income.
4 years of minimum wage hiring spree later, these industries, by and large, have a sufficient number of workers to fill these new slots. They no longer need to mass hire, as they have achieved adequate staffing levels. I would expect to see these sectors shift towards the replacement of departing workers, rather than brand new hires. That is consistent with the BLS hiring data as well as the EPI analysis of this data.
Drilling further down into the most recent BLS data, we can see which sectors the Labor Department reported growth in that have "above average wages:" most prominent are Construction, Transportation, and Warehousing. Half century low interest rates are the reason for the strong Construction data. Its too bad we cannot export houses, perhaps that might be a way reduce our current account deficit.
Another sector that enjoyed robust
growth was Transportation – namely, trucking. While this represents strength in
the economy – it is the economy of China, and not the United States – that is
the primary beneficiary of this. As this discussion of West coast port activity
makes clear (see: Preparing
for a monster delivery) everything associated with the importation of
finished goods from China is a growth business. Short term, job growth for
truckers and warehouse foremen is a new positive. Long term, this enormous
balance of trade deficit is not helping the U.S. get its structural problems
Following a mild recession and a horrific market crash, a large group of people have been taking lower paying, jobs with weaker benefits. A combination of post-bubble economics, globalization and outsourcing are the primary reasons why. After a four year hiring spree, these lower paying industries have most of the employees they need. It’s somewhat ironic that the secondary sectors of transporting and warehousing these overseas manufactured goods – formerly made here, now outsourced – is a growth sector. That’s hardly cause for celebration.
Then there's inflation. Despite Thursday’s CPI data, unless you live in a cave, you know inflation has been robust. I noted Wednesday that real wages continue to fall behind real prices, regardless of whether you look at a 20 year or a 5 year time period. The Bureau of Labored Statistics (to borrow Barron's Gene Epstein term) can use whatever hedonics and seasonal adjustments they desire, but it doesn't change reality one bit. Inflation is eating into limited income gains of most consumers faster than their wages are rising. Unless this trend is reversed, this bodes poorly for the future standard of living of U.S. consumers.
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Tracked on Jul 16, 2005 12:03:41 PM
Many baby boomers are NILFs:
"Baby boombers are not waiting until age 62 or 65 to stop working. Over 4 million already have left the labor force either because they are disabled or because they have retired."
The Early Exit of Baby Boomers from the Labor Force
Posted by: bhaim | Jul 15, 2005 10:41:59 AM
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