(What’s Left of) Our Economy: Rising Fed Rates Amid Slowing Real Wages?

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Federal Open Market Committee, Federal Reserve, inflation-adjusted wages, interest rates, Labor Department, manufacturing, private sector, recovery, wages, {What's Left of) Our Economy

Although it’s usually hard to muster much sympathy for the governors of the Federal Reserve, today might be an exception.

On the one hand, this afternoon their Open Market Committee is scheduled to announce its latest decision on interest rates, and it’s given many indications that it’s going to again make the cost of borrowing a little more expensive. That probably means, all else equal, that economic activity in the United States (including growth and hiring) will slow down, at least in the short term.

On the other hand, the U.S. government reported a slew of economic data this morning indicating that the economy is getting weaker – which would make at least the timing of even a modest rate hike awkward. Among them were inflation-adjusted wage figures (for May) that once more reveal a significant slowdown in American workers’ real take-home pay.

For the private sector overall (the Labor Department, which calculates these figures, doesn’t report inflation-adjusted wages for public sector workers, because their government-set pay tells us little about the state of the economy), the news wasn’t bad at all on a month-to-month basis. Constant-dollar wages rose 0.28 percent from their April levels – after having gone exactly nowhere the month before.

But the year-on-year results – which smooth out inevitable random-ish monthly fluctuations – were again nothing less than discouraging. From last May until this May, this price-adjusted pay increased by just 0.56 percent. That was indeed their strongest annual improvement since last December’s 0.75 percent. But it was much less than half the after-inflation pay advance between the previous Mays (1.42 percent), much less that of May, 2014-May, 2015 (2.33 percent).

So largely as a result, during the current economic recovery – which is nearly eight years old – real private sector wages are up only 4.26 percent.

But according to the Labor Department, private workers overall have been enjoying salad days compared with manufacturing workers. The latter’s real wages fell on month in May by 0.28 percent. It’s true that this decline followed an upwardly revised 0.55 percent sequential April increase that was the sector’s best since August, 2015’s 0.66 percent. But the May monthly decline was the sector’s worst since last November’s 0.64 percent slide.

Manufacturing’s year-on-year real wage results are scarcely better. In May, they flat-lined — their worst such performance since September, 2014’s 0.29 percent annual dip. The two previous May annual real wage increases”? Between 2015 and 2016, 2.45 percent, and between 2014 and 2015, 1.53 percent.

And during the nearly eight years since the economy began growing once again, real manufacturing wages are up 1.31 percent.

These glum wage data notwithstanding, there still could be good reasons for the Fed to announce another rate hike today. As RealityChek readers know, it’s entirely possible that recent years of stimulus from the central bank has mainly stolen potential growth from the future by promoting artificial growth. Similarly, as the Fed itself has acknowledged lately, monetary policies that have made credit so cheap – and indeed, practically free for blue-chip borrowers – for so long can encourage the kind of crackpot investing and financial instability that could trigger another global crisis.

If the Fed emphasizes these concerns in its (usually brief) statement accompanying the interest rate announcement, or in the more detailed Open Market Committee meeting minutes it publishes later, it will deserve the nation’s gratitude for straight talk – however overdue it might be. If, however, the central bank insists that it’s raising rates mainly because the economy is looking encouraging, it will be increasingly deserve the label of mindless cheerleader.  

(What’s Left of) Our Economy: JOLTS of Confusing News About the U.S. Jobs Market

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government jobs, job openings, JOLTS, Labor Department, labor shortage, living standards, manufacturing, private sector, productivity, recovery, retail, wages, {What's Left of) Our Economy

Since the U.S. economy has settled at its current level of near-full employment (at least by the official figures), the monthly JOLTS reports issued by the Labor Department have been attracting much less attention – including from me! After all, with so many Americans working, it’s been less important (though not totally unimportant) to learn about one of the key findings in each such survey of labor market turnover – how many new job opportunities business and government say they’ve been creating. 

So it’s not surprising that today’s JOLTS report (for April) hasn’t had much impact on the financial markets this morning. But it still contained more than its share of noteworthy results that reinforce what we think we already know about the economy’s current biggest problems, and that raise major questions about other portions of the conventional wisdom.

The overall job openings number, for example, was quite the stunner: At 6.044 million, it was an all-time high in absolute terms. (The JOLTS series dates from December, 2000.) And the 4.48 percent increase over May’s 5.785 million level represented the biggest monthly jump since last July’s 7.91 percent.

Openings in the private sector hit a new record in April, too (5.464 million). And that 4.20 percent monthly rise was the great sequential increase since last July (8.46 percent).

But as RealityChek regulars know, the economy’s growth has been sluggish even by the meager standards of the current economic recovery. In the first quarter of this year, real growth came in at a paltry 1.15 percent annual rate. So the JOLTS figures indicate that employers feel they need record numbers of new employees even though as a group their output is historically lousy.

That adds up to more evidence that American business boosting its productivity only sluggishly at best – which is awful news given that productivity growth is the nation’s best hope for improving living standards in a sustainable, not bubble-ized, way. And as I’ll be reporting on shortly, the latest government labor productivity numbers once more confirm that the economy is stuck in a productivity crisis.

Yet these JOLTS results carry more complicated implications for another broadly accepted feature of the American economy. They support the idea that U.S. businesses are struggling to overcome almost unprecedented labor shortages. How else to explain the enormous number of reported job openings? But companies that desperate to find workers should be raising wages at rapid and indeed accelerating rates. Everything that we know about hourly pay, though, tells us that nothing of the kind is happening. If anything, wage growth, which has underwhelmed throughout the current recovery, is showing signs of slowing.

One other new record revealed by today’s JOLTS report – total government job openings (540,000) have never been higher except in April, 2010, when the call went out for temporary Census workers. Even more interesting, most of the openings were in state and local governments outside the schools.

Also somewhat surprising: The “retail-pocalypse” so commonly bemoaned or hailed (depending on your viewpoint) is nowhere to be seen in this JOLTS report. Sure, retail job openings fell between March and April from 593,000 to 577,000. Moreover, that’s the lowest level since December, 2015, and the numbers now are generally, though unevenly, trending down. But for the first more than seven years of this nearly eight-year old recovery, they were trending solidly up. With overall economic growth down and consumers still cautious, the reported retail openings numbers are far from screaming “disaster!” – or even “serious trouble!”

Finally, although manufacturing output has been modestly recovering lately from its most recent recession, its job openings fell from 404,000 in March (the second highest record and best since January, 2001’a 496,000) to 359,000 in April. Still, the decline followed a major increase in March (from 364,000), and the manufacturing numbers have been pretty volatile for more than two years.

Maybe the safest conclusion to draw from the JOLTS numbers is that, for now, the economy is heading for more of the same. Whether that’s the safest result for incumbent American politicians is another matter entirely.

(What’s Left of) Our Economy: As Political Wars Rage, U.S. Wages Keep Stagnating

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inflation-adjusted wages, manufacturing, private sector, real wages, Russiagate, Trump, wages, workers, {What's Left of) Our Economy

The tragedy of the continuing Trump and “Russiagate” political battles was perfectly illustrated yesterday by the release of the Labor Department’s newest data on inflation-adjusted wages. As the administration and its foes intensified a fight that’s ultimately over the legitimacy of the president’s White House win last November, the statistics made clear that the growth of Americans’ paychecks is still deeply stuck in the mud.

The real wage figures are always one month behind their pre-inflation counterparts, so the new numbers only take us through April. And they and the March results are still preliminary. At first glance, the news looked mixed. On a monthly basis, wages for the private sector (these data leave out government workers’ wages, since they’re determined largely by politicians’ decisions, not market forces) inched up only 0.09 percent in April. That was worse than March’s 0.28 percent improvement, and that March figure was revised down from the initial 0.47 percent reading.

The picture was somewhat brighter for manufacturing; April’s sequential increase of 0.46 percent was its best since August, 2015 (0.66 percent). But the March rise was downgraded from 0.37 percent to 0.28 percent.

And no one should be happy about the year-on-year changes. April’s was 0.37 percent for the private sector as a whole, and 0.46 percent for manufacturing. Between the previous Aprils, the numbers were 1.42 percent and 1.79 percent, respectively.

The cumulative results during this nearly eight-year old economic recovery? After-inflation private sector wages have increased only 4.07 percent, and manufacturing wages are up only 1.49 percent.

In other words, American workers – and especially those in manufacturing – have all but lost nearly eight years when it comes to their ability to keep up with the cost of living. And given Washington’s focus on the political wars, more lost months at the least are likely on the way.

(What’s Left of) Our Economy: Has Subsidized Private Sector Hiring Peaked (Relatively Speaking)?

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CNN.com, Employment, healthcare services, Jobs, Labor Department, non-farm jobs, private sector, real private sector, recession, recovery, subsidized private sector, The New York Times, {What's Left of) Our Economy

The Snob’s Manual tells us (often correctly) that you know when the stock market’s peaked when the retail investor rushes in, and that you know when a fad is passe when the mainstream media report it. Could the same maxim be on target for economic trends, like the outsized role played by the U.S. subsidized private sector in job creation during the recovery? I’m not sure yet, but the last few sets of monthly American employment data (including last Friday’s April figures) are certainly food for thought.

As RealityChek regulars know, I’ve been spotlighting this trend since well before RealityChek was born. And it was great to see the theme picked up last month by a major reporter who covers the healthcare sector (the core of that part of the economy dubbed private sector but in fact heavily dependent on government spending). Since then, healthcare hiring’s unusual recent robustness has been covered by The New York Times and CNN.com.

Here’s the rub: So far this year, subsidized private sector job creation has become less important in the overall employment picture, not more. The March and April statistics are still preliminary, but since January, the pace of subsidized private sector hiring has ranged between 7.87 percent of total monthly job creation (in January) to 29.31 percent (in February). The April figure was right in the middle: 19.43 percent.

The subsidized private sector’s waning momentum – at least relatively speaking – comes through more clearly when the first four months of this year are compared with their last few counterparts. From January through April, 2017, subsidized private sector net new job creation (which also includes social assistance agencies and the for-profit education sector) represented 18.43 percent of the non-farm total (the Labor Department’s definition of the American employment universe.

That share is considerably higher than the figure for the first two months of 2013 and 2014 (14.56 percent and 12.53 percent, respectively). But it’s also considerably lower than the 27.68 percent for 2015 and the 23.87 percent for the same time span in 2016. In addition, these numbers show that the subsidized private sector’s importance has not fallen for two straight years.

That’s not to say that the subsidized private sector isn’t still punching above its weight. Its 19.43 percent of net new job creation was still greater than its share of total employment on a standstill basis (15.75 percent). It’s also still higher than the share at the mid-2009 onset of the current recovery (14.97 percent). And it’s much higher than the share at the start of the last recession at the end of 2007 (13.22 percent). But there’s no doubt that this year it’s not punching quite as hard.

The flip side of the equation tells a similar, but not identical, story. The “real private sector” – where job creation is determined largely by market forces, not government decisions – stood at 68.95 percent of total non-farm jobs last month. That’s actually a little higher than its share at the start of the recovery (67.80 percent). But it’s also still a little lower than its share at the start of the last recession – more than nine years ago (70.62 percent).

There’s still a long way to go in figuring out whether these early 2017 results will hold up even through the end of this year, much less whether they represent hiring that’s peaking (again, relatively speaking) in the subsidized private sector. And of course a huge question mark is hanging over this entire chunk of the economy in the form of the healthcare debate. But the real implications are unchanged. Although subsidized private sector jobs serve many valuable purposes, the more the economy leans on them to generate employment and incomes, the less dynamic and productive the nation is bound to be.

(What’s Left of) Our Economy: Best Stretch of U.S. Manufacturing Jobs Gains in Nearly Two Years Continues but Wages Outlook is Cloudy

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Bureau of Labor Statistics, inflation-adjusted wages, Jobs, manufacturing, manufacturing jobs, private sector, recession, recovery, wages, {What's Left of) Our Economy

U.S. monthly manufacturing employment grew for the fifth straight month in April for its best such performance since a nearly two-year stretch of sequential gains from 2013 to 2015. As a result, the sector continued to edge out of its latest jobs recession. But the monthly pace of employment increases (6,000 in April) fell for the third consecutive month.

In addition, manufacturing’s share of total non-farm payrolls fell to its latest record low – 8.46 percent. Revisions were negative by 2,000. Year-on-year manufacturing employment growth sped up again in April (to 40,000) – its best annual improvement since February, 2016 (69,000).

Pre-inflation manufacturing wages in April recorded their best monthly improvement (0.68 percent) since last October (0.73 percent). And for the first time in four months, these manufacturing wage advances exceeded that of the overall private sector (0.27 percent.) Year-on-year current dollar manufacturing wage momentum seemed to stall out, registering its slowest such advance (2.71 percent) since last August (2.68 percent). But the strong monthly gain resulted in industry’s annual wages gains resuming their recent pattern of topping those of the private sector (2.55 percent).

Manufacturing remained a recovery-era jobs and wages laggard, but the gap in pay at least narrowed between March and April from a 22.81 percent difference between the recovery-era increase in cumulative private sector and manufacturing wage increases to an 18.61 percent difference. Yet the latest (March) real wage data kept showing manufacturing pay falling further behind.

Here’s my analysis of the latest monthly (April) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>Manufacturing employment grew sequentially for the fifth straight month in April, enabling the sector to keep edging out of its latest jobs recession and record its best stretch of monthly employment improvement since the August, 2013 to July, 2015 period.

>But April’s monthly gain of 6,000 represented the third straight month of slowing advances, and helped drag industry’s share of total nonfarm payrolls (the government’s definition of the U.S. employment universe) to it’s latest all-time now – 8.46 percent.

>So did slightly negative revisions, with March’s originally reported 11,000 monthly jobs gain revised up to 13,000, but February’s already downgraded 26,000 increase reduced again to 22,000.

>On the brighter side, the April figures were good enough to produce a year-on-year manufacturing jobs improvement of 40,000 – the best such advance since February, 2016’s 69,000. The April annual advance also bettered that between the previous Aprils (35,000).

>Manufacturing wages presented a mixed picture, too. In April, industry pay before inflation enjoyed its best monthly increase (0.68 percent) since last October (0.73 percent). The spurt was especially welcome, since the sector’s monthly March wage change was revised down from 0.04 percent to zero.

>Moreover, for the first time since December, such manufacturing wage rises resumed outpacing increases in the private sector overall (0.27 percent).

>The year-on-year April manufacturing pre-inflation wage increase of 2.71 percent, however, was its slowest since last August (2.68 percent). It was lower, too, than that of April, 2015 to April, 2016 (2.99 percent). At the same time, the new April result also bested that of the private sector overall (2.55 percent), continuing a streak of out-performance that began in March, 2016.

>On a pre-inflation basis, manufacturing’s wage increases during the current economic recovery still trail those of the private sector, but the gap narrowed between March and April. The revised figures for the former month show that private sector wages had risen by 17.98 percent since the current expansio began in mid-2009 – 22.81 percent faster than manufacturing wages (14.64 percent).

>As of April, however, private sector wages during the recovery were up by 18.29 percent while manufacturing wages had improved by 15.42 percent – a gap of only 18.61 percent. ,since the expansion began in mid-2009.

>Yet when wages are adjusting for inflation, manufacturing’s performance looks worse than ever. The latest figures only cover March, but show that industry’s 0.37 percent price-adjusted monthly pay improvement fell short of the overall private sector’s 0.47 percent advance.

>Year-on-year, manufacturing wages were up only 0.19 percent – also worse than the (also meager) 0.28 percent rise for the private sector.

>As a result, real manufacturing wages have increased by only 0.93 percent during the current, nearly eight-year old economic recovery. Overall private sector wages are up 3.97 percent.

>In April, manufacturing retained its status as an employment laggard, too. During the recovery, its payrolls are up by only 5.71 percent. The total for employment in the private sector as a whole? 14.09 percent.

>Since the late-2007 onset of the last recession, manufacturing’s performance is equally poor. From that time to the early 2010 troughs, manufacturing lost 2.293 million jobs and private sector payrolls shrank by 8.801 million.

>Since then, manufacturing has regained just 41.43 percent of those lost jobs (a total of 943,000). The private sector as a whole has boosted employment by 16.436 million.

>As a result, total private sector employment is now 6.62 percent higher than at the recession’s late-2007 onset, but manufacturing employment is still 9.82 percent lower.

(What’s Left of) Our Economy: New Evidence of a Crossroads for the U.S. Jobs Market

Tags

benefits, compensation, Employment Cost Index, Federal Reserve, inflation, Labor Department, labor market, labor unions, private sector, recovery, salaries, wages, {What's Left of) Our Economy

If you’re one of the American workers who’s been happy with the current economic recovery, you might have already seen peak pay gains. If you haven’t been satisfied, get ready for greater disappointment. And whatever category you fall into, you’d better hope that new U.S. government data on overall compensation paid by American employers is just a blip. Ditto that for the Federal Reserve, which is set to announce its latest decision on interest rates later today, and which seems convinced that the American labor market is healthy enough to withstand a series of hikes back toward historically normal levels.

Last week, the Labor Department issued its latest quarterly report on how much business shells out in terms of both wages, salaries, and benefits. The results in the main release looked pretty good, but they’re not adjusted for inflation – which means that they don’t tell the full story about whether or not compensation is keeping up with the cost of living. Luckily, Labor released the inflation-adjusted figures, too, and they make clear that whatever real compensation progress workers might have been recently been making could be in danger.

According to these constant-dollar Employment Cost Index (ECI) figures, real pay for all private sector workers was flat year-on-year for the quarter ending in March. (I don’t usually examine pay data that include government workers because their compensation is set overwhelmingly by political decisions, not market forces, and therefore don’t say much about the underlying strength of the labor market or the broader economy.)

That annual result was the worst since the quarter ending in June, 2014 – when after-inflation compensation also flatlined on an annual basis. By comparison, the real ECI between that first quarter of 2015 and the first quarter of 2016 rose by 0.97 percent.

Looked at quarter-to-quarter, the real ECI for private sector workers fell by 0.10 percent. The previous sequential change was a 0.29 percent improvement. Indeed, the latest numbers broke a two-quarter string of gains.

From a longer-range perspective, however, the current recovery still stacks up pretty well for private sector workers (although the data only go back to mid-2001). Since it began, in mid-2009, their total compensation is up by 3.60 percent. During the previous (shorter) expansion – which ran from late 2001 through late 2007, total inflation-adjusted compensation rose by only 2.36 percent.

The new real ECI results reveal similar trends for American manufacturing workers. The first quarter’s year-on-year 0.20 percent drop was the worst such result since an identical decrease in the final quarter of 2012. And the previous first quarter annual change was a 1.49 percent rise.

Sequentially, real manufacturing compensation also fell during the first quarter – by 0.29 percent. And as with overall private sector compensation, that was the first such decline in three quarters.

Interestingly, in terms of real total compensation, the current recovery has been a winner for manufacturing workers to an even greater extent than for all private sector workers. Combined constant dollar employer costs for wages, salaries, and benefits have risen by 4.72 percent – compared with a 1.99 percent advance during the previous recovery. (RealityChek regulars will note that these results contrast strikingly with those for wages alone, where manufacturing has been a major laggard. One reason is surely manufacturing’s relatively high unionization rate – which typically results in better benefits won and kept.)

If the Federal Reserve decides today to raise the federal funds rate it controls directly, or even if it simply stays determined to remains on a tightening path, it would signal its confidence that the American labor market remains on the mend following devastating losses during the last recession. Any doubts the central bank voices about its current strategy might indicate that it’s genuinely worried about the new ECI statistics – and that U.S. workers should be, too.

Following Up: Healthcare’s Outsized Job Creation Reported in The New York Times

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Affordable Care Act, Chad Terhune, Employment, Following Up, healthcare, healthcare services, Jobs, Obamacare, private sector, productivity, subsidized private sector, The New York Times, Trump

Well this is pretty cool! A new New York Times op-ed piece has spotlighted a trend that RealityChek has long covered: how strongly the creation of healthcare services employment has dominated recent American job creation, and how this trend has been especially noteworthy since the financial crisis and Great Recession broke out nearly a decade ago.

At the same time, author Chad Terhune, who reports on the healthcare industry for Kaiser Health News and the California Health Care Foundation, explains a major dilemma being created by outsized healthcare job creation for the Trump administration: Because so many of the new jobs in the sector have been driven by the build-out of Obamacare, the president’ promise to abolish this vast new structure could endanger his broader promise to jump-start feeble U.S. economic growth and stagnating incomes.

Even worse, according to Terhune, any effort to make healthcare more affordable, or even keep it at its current affordability levels, will significantly weaken the healthcare job-creation engine.

As the author sees it, healthcare hiring got a major boost “as coverage expanded in 2014 under the [Affordable Care Act] and new federal dollars flowed in. The law gave hospitals, universities and companies even more reason to invest in new facilities and staff. Training programs sprang up to fill the growing job pool. Cities welcomed the development — and the revenue.”

Sharpening the healthcare jobs conundrum faced by the president: “rising health spending has been good for some economically distressed parts of the country, many of which voted for Mr. Trump last year.” And Terhune cites specific examples from West Virginia to Pennsylvania to Ohio and Missouri.

Just as important, the author convincingly shows that American healthcare’s success in creating employment – which clearly predates Obamacare’s passage – also largely explains its inefficiency. In Terhune’s words, because of the system’s

“redundancy, inefficiency and a growing number of jobs far removed from patient care….[l]abor accounts for more than half of the $3.4 trillion spent on American health care, and medical professionals like health aides and nurse practitioners are in high demand. But the sheer complexity of the system has also spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills.”

And although Terhune doesn’t make the point explicitly, this labor-intensivity means that the sector of the economy fueling so much of its output and hiring is pathetically unproductive. In other words, the more outsized growth and employment healthcare creates, the less able the entire economy will be to raise living standards on a sustainable basis.

Moreover, one big reason for this low productivity is a feature of the healthcare system – both under Obamacare and before it – not mentioned by Terhune, either, but that’s vital to recognize: As I’ve observed, although this gigantic industry is officially (and no doubt popularly) considered a part of the private sector, its scale owes largely to subsidies from the public sector, which is renowned for low productivity.

As always, RealityChek readers – and others – need to understand that placing healthcare (and similar industries, like the for-profit educational system and social assistance agencies) outside the “real private sector” is not the same as questioning its fundamental value. After all, no truly civilized society would ever reduce public policy to a quest for productivity to the exclusion of all other goals, whether economic or non-economic. Moreover, as some readers have alertly pointed out, the steady aging of the American population is bound to mean continued healthcare sector growth.

But Terhune’s article is a badly needed reminder that the economy’s heavy reliance on the current healthcare system’s employment power has major downsides. As its title indicates, it’s a “costly addiction,” and its price is bound to rise without a major overhaul of some kind.

(What’s Left of) Our Economy: No Takeoff in Sight for Americans’ Real Wages

Tags

Bureau of Labor Statistics, inflation-adjusted wages, manufacturing, private sector, recovery, wages, {What's Left of) Our Economy

If you, like former President Harry Truman, are sick of two-handed economic analysis (“on the one hand, one the other….”), then you’re really not going to like the latest government data on Americans’ wages adjusted for inflation. For they continue the pattern of an economic recovery that keeps giving and taking away and giving…and so forth.

The good news is that real wages for the entire private sector are no longer in recession – that is, they now haven’t been down on net for two consecutive quarters. Most of the credit goes to the March increase reported this morning by the Bureau of Labor Statistics (BLS). The 0.47 percent monthly gain (which is still preliminary) over February’s level (also still preliminary) was the biggest since January, 2015’s 1.05 percent.

Nonetheless (yes, cue that other hand!), U.S. real wages have still been flat since last July. Moreover, the March year-on-year change (+0.28 percent) is much smaller than the improvement between the previous two Marches (1.52 percent).

The picture gets no prettier when the focus turns to manufacturing. Its March monthly price-adjusted wage gain (preliminary, just as with overall private sector wages) was strong as well, with the 0.37 percent advance the best since last October’s 0.46 percent. (The still-preliminary February decline of 0.09 percent stayed unrevised, too.) But that boost wasn’t enough to end a recession on this front stretching back to last April.

Year-on-year, after-inflation manufacturing wage gains have slowed down considerably as well. The latest figure is 0.19 percent, compared with the March, 2015-March, 2016 increase of 1.50 percent.

Not surprisingly, the bottom line remains pretty grim:  Adjusting for inflation, American workers in the private sector as a whole, and especially in manufacturing, have seen their hourly paychecks rise only minimally since the current economic recovery began – nearly nine years ago. For the private sector, the increase has been only 3.97 percent. For manufacturing, it’s been a paltry 0.93 percent.

Of course, however ambiguous these real wage data look economically, the political message they’re sending looks clear enough: If Americans’ wage gains don’t start speeding up significantly, they’ll undercut the fortunes of President Trump and the Republican Congress as surely as they kneecapped their Democratic counterparts just last November.

(What’s Left of) Our Economy: The Real U.S. Private Sector’s Employment Role Keeps Shrinking and Shrinking

Tags

Bill Clinton, Employment, George W. Bush, healthcare services, Jobs, Labor Department, non-farm jobs, Obama, private sector, recoveries, subsidized private sector, {What's Left of) Our Economy

Because the latest monthly U.S. jobs figures that were released last Friday incorporated revisions going back to last March, our picture is clearer than ever of how dependent former President Obama’s job-creation record was on employment gains in what I call the economy’s subsidized private sector. Those are industries, notably healthcare service, where levels of demand (and therefore employment) are heavily reliant on government subsidies (and therefore politicians’ decisions) instead of on market forces.*

And unless you believe that government or parts of the economy it largely underwrites should be America’s job-creation leaders – which you shouldn’t – you’ll recognize that the more prominent that subsidized private sector is in the nation’s employment picture, the weaker the job market’s dynamics, and the U.S. economy’s genuine strength.

The verdict? These subsidized industries played a large, growing role in U.S. employment gains achieved during the economic expansion that began in June of Mr. Obama’s first year in office. At the same time, although the economy under Mr. Obama performed much better in this crucial respect than under his predecessor, George W. Bush, it fell short of the job-creation pattern under Mr. Bush’s predecessor, Bill Clinton.

The easiest way to show these trends is to focus on the share of total non-farm employment (the American jobs universe according to the U.S. Department of Labor, which officially tallies these numbers) accounted for by the subsidized private sector on a stand-still basis and the share of total job gains it represents. That methodology also yields the data on how employment in what might be called the “real private sector” is faring. And here are the numbers for the last administration:

 
Non-farm job change: +14.534m Percentage change: +11.09

Private sector job change: +14.833m Percentage change: +13.68

Subsidized private sector job change: +3.276m Percentage change: +16.70

Real private sector job change +11.557m Percentage change: +13.01

 

The following numbers show how strongly the subsidized private sector has influenced overall job creation under Mr. Obama:

 
Share of total non-farm job gains: 22.54 percent

Share of conventionally defined private sector job gains: 22.09 percent

 
As a result, the real private sector accounted for 80.51 percent of total non-farm job gains – a high but much smaller share than that resulting from failing to strip out the subsidized jobs (102.06 percent – the discrepancy comes from the absolute reduction in government jobs under President Obama).

Moreover, the subsidized private sector’s importance grew impressively during the Obama years. Between 2015 and 2016, it produced 24.44 percent of all non-farm jobs generated and 26.68 percent of all the employment improvement in the private sector as conventionally defined.

Nevertheless, if the subsidized private sector’s employment role grew robustly under President Obama, it positively skyrocketed during the Bush recovery of the 2000s compared with the rest of the economy. Let’s start by examining the job increases in the relevant major sectors of the economy from the end of 2001 to the end of 2007 – an expansion much shorter than that which began under President Obama:

 
Non-farm job change: +7.139m Percentage change +5.45

Private sector job change: +6.388m Percentage change +5.83

Subsidized private sector job change: +2.827m Percentage change +17.56

Real private sector job change +4.191m Percentage change +4.48

 
The contrast with the Obama years is even more striking when you specify the percent of jobs created for which the subsidized private sector was responsible. In the most important measures, both numbers are roughly twice as high:
Share of total non-farm job gains: 39.60 percent

Share of conventionally defined private sector job gains: 44.25 percent
As a result, the real private sector accounted for just 58.71 percent of total non-farm job gains under former President Bush – way smaller than the share than that resulting from failing to strip out the subsidized jobs (89.48 percent).

But the data leave little doubt that the best recent job-creation performance of recent presidents was turned in by Bill Clinton – with one caveat. Here are the figures for the economic expansion that began in April, 1991 (several months before his first inauguration) and February, 2001 (a month after he left office).

 

Non-farm job change: +24.412m Percentage change +22.53

Private sector job change: +21.991m Percentage change +24.47

Subsidized private sector job change: +4.109m Percentage change +35.84

Real private sector job change +17.882m Percentage change +22.80

 

In terms of the employment-generation role played by the subsidized private sector, here’s what these numbers show for the Clinton expansion:

 
Share of total non-farm job gains: 16.83 percent

Share of conventionally defined private sector job gains: 18.68 percent

 

The one blemish in the Clinton record is the very strong relative growth shown by the subsidized private sector both in absolute and percentage terms. Yet these developments didn’t move the overall job change numbers nearly as much as under Presidents Bush and Obama because they started from a considerably smaller base.

 
Finally, let’s examine how the subsidized and real private sectors’ share of total employment on a static basis has changed since the Clinton expansion began, with the beginning and end of that recovery and subsequent recoveries as our benchmarks:

 
Subsidized private sector as share of non-farm employment, start of Clinton recovery: 10.58 percent

Real private sector share: 72.36 percent

 

Subsidized private sector as share of non-farm employment, end of Clinton recovery: 11.73 percent

Real private sector share: 72.53 percent

 

Subsidized private sector as share of non-farm employment, start of Bush recovery: 12.29%

Real private sector share: 71.41 percent

 

Subsidized private sector as share of non-farm employment, end of Bush recovery: 13.67%

Real private sector share: 70.16 percent

 

Subsidized private sector as share of non-farm employment, start of Obama recovery: 14.97 percent

Real private sector share: 67.80 percent

 

Subsidized private sector as share of non-farm employment, latest Obama data: 15.73

Real private sector share: 68.97 percent

 
The best way to sum up these trends?  In my view, it’s realizing that, since the Clinton recovery began three and one half decades ago, the American economy has generated 37.188 million net new jobs. At that time, the subsidized private sector represented 10.58 percent of total employment.  Since then, it’s been responsible for 30.72 percent of the net new jobs created in the nation — punching way above its weight

The real private sector in April, 1991 accounted for 72.36 percent of the country’s total employment.  Since then, it’s produced 59.08 percent of net new jobs — punching well below its weight.  And finally, fully 52 percent of all the added employment created since April, 1991 that is officially classified as private sector has actually come in the subsidized private sector.

In other words, Presidents come and presidents go, and the economy expands and contracts. But for the last 35 or so years, the subsidized private sector has continued to grow in relative importance. Donald Trump is already considered to be the greatest disruptor in the presidency’s recent history. Is this trend, though, too powerful even for him to resist?

*As always, my definition of the subsidized private sector is not meant to be inclusive.  It simply includes three parts of the economy – healthcare services, the for-profit education sector, and social assistance agencies – that are broken out in the Labor Department data, and that therefore are easy to identify.  It should also encompass workers in sectors like defense-related manufacturing, but many of these are much more difficult to quantify.  

 

(What’s Left of) Our Economy: Government is Still (Indirectly) Driving Too Much U.S. Job Creation

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Great Recession, health care services, Jobs, Obama, private sector, recovery, subsidized private sector, Trump, {What's Left of) Our Economy

Time for one of my favorite exercises in figuring out the American economy’s real strengths and weaknesses – as opposed to those reported by the usual mainstream media suspects. In other words, here’s what Friday’s new monthly U.S. jobs report tells us about how many of the new positions created in November and during the economic recovery have been those truly deserving the label “private sector,” and how many have come from industries heavily dependent on government subsidies (chiefly healthcare services).

This distinction seems more important than ever nowadays, with the country in the midst of presidential transition, and the media spreading the story that, thanks to President Obama, Donald Trump is incredibly lucky to be entering the Oval Office with an economy in such excellent shape – as opposed to the near-disaster situation faced by his soon-to-be predecessor.

If the new jobs figures really did bear out this claim, then you’d expect that the vast majority of the employment increase last month, and recently, would have come in the “real private sector” – because it’s always been the nation’s best bet for enduring prosperity. And by the same token, given their reliance on tax dollars and politicians’ decisions, you’d hope that new employment in the subsidized private sector would be a relatively small and even shrinking part of the picture.

Sadly, the narrative of the current recovery has told exactly the opposite story, with the November jobs figures underscoring again how employment gains in the subsidized portions of the labor market have punching considerably and increasingly above their weight.

The November statistics showed that the subsidized private sector created 44,000 of the 178,000 total net new jobs generated that month – or 24.72 percent. The private sector contributed 156,00 – or 84.67 percent. But as of November, the subsidized private sector accounted for just 15.78 percent of the nation’s total employment – a major over-performance. The private sector’s share of job gains was 87.64 percent – a minor over-performance.  (Government at all levels accounted for the remainder of the employment improvement.)

Compare these figures to those at the start of the economic recovery, in the middle of 2009. At that time, when the economy was still losing hundreds of thousands of jobs per month, the subsidized private sector accounted for only 14.97 percent of total employment – but it gained 31,000 jobs that month. Indeed, it was the only net job-creation game going, as private sector employment was 82.77 percent of total jobs and shed 429,000 jobs.

At the start of the last recession, at the end of 2007, the subsidized private sector’s share of total American employment was even lower – 13.63 percent – though it was generating more than half of all the net new job created then. The total private sector represented 83.83 percent of all U.S. employment, but was responsible for only 56.70 percent of new job creation – i.e., not much more than the much smaller subsidized private sector. (Government at all levels added the balance of new jobs – more than 43 percent.)

And what happened to the real private sector during this time?  Its share of total American employment sank from 70.19 percent to 67.88 percent and last month totaled only 62.92 percent. 

The burgeoning role of the subsidized private sector also becomes clear by looking at job creation patterns over the last four years. During the first eleven months of 2013, 14.92 percent of all the economy’s new jobs came in the subsidized private sector. Moreover, these industries made up 14.60 percent of all the conventionally defined private sector jobs generated. During the first eleven months of this year, these numbers had increased to 24.82 percent and 30.18 percent, respectively.

Subsidized private sector jobs as a share of total jobs created actually dipped from 2015’s levels – when they stood at 25.27 percent. But that’s because the pace of government hiring more than doubled. More revealingly, the subsidized private sector represented 26.05 percent of all the conventionally defined private sector jobs created during the 2015 period. During the first eleven months of this year, this share increased to 30.18 percent.

From the opposite perspective, from January through November, 2013, 87.23 percent of all U.S. jobs created were real private sector jobs. By the first eleven months of this year, that figure had sunk all the way down to 63.52 percent.

As I keep reminding, no one should take this analysis as an argument that subsidized private sector jobs are “bad.” Obviously, the healthcare industry and social assistance agencies and for-profit educational institutions perform critical functions for any civilized society. But their reliance on government assistance just as obviously puts them in a different category from sectors of the economy where growth (and therefore hiring) to a much greater extent on free market forces. And no one should mistake their ballooning payrolls as a sign of healthy economic fundamentals.

As a result, I fervently hope that the new administration will direct the government’s statistical agencies to start drawing this distinction. If you care about knowing the real deal about the state of the economy, you will, too – and send your elected officials the message.