Poor Jobs Data

Oh well.

For most of the last couple of weeks the financial media and various Wall Street economists have been plying us all with optimistic forecasts for unemployment. This week, the argument went, would bring the first increase in payrolls for a very long time, and that would portend a very happy 2010. Even if this message was conveyed in hushed tones it was insistent and strong. Wall Street tends to see things in enormously simple and shallow terms: the level of thinking is, by and large, very poor and designed to support a sales mentality rather than illuminate us with knowledge. There are exceptions of course: Goldman Sachs has an excellent record and is worth listening to. Overall, however, the folks who inhabit the financial press and cable networks are known more for their smiles than their brains.

Nonetheless there was a general feeling that payrolls would be seen to be growing when the government reported this morning on its non-farm data.

Wrong.

Payrolls fell once again by 85,000. This disappointment is not offset by the revision to the November data which produced a very slight increase in that month. To make matters worse the drop in payrolls was spread across the economy and was not centered in any single sector.

The only conclusion we can come to is that, for all the positive signals – and there have been many – the economy is simply stuck in a much discussed ‘jobless’ growth stage. Each month that goes by in this stage adds more credence to the more pessimistic outlook I have peddling here. I just do not see the economy picking up sufficient steam to start a surge in hiring. We are reliant upon the stimulus at the moment and the private sector is stuck firmly in neutral.

This is a state of mind as much as anything else: fear that future sales will disappoint force businesses to remain cautious, and current caution implies weak future sales. This is a classic example of the Keynsian ‘paradox of thrift’. The only known way out, short of a full blown depression, is yet more stimulus to break the cycle.

So I see today’s payroll data as being a confirmation of the general outlook being put forward by the ‘pessimists’: growth will come slowly and without a surge. Jobs will continue to be hard to find. Discouraged workers will drop out of the workforce so the unemployment rate is unlikely to spike much higher – today it stayed flat at 10%. Profits will rebound on the back of lower costs, not great revenue growth. Interest rates will have to remain low because an increase would stifle growth, but keeping rates low could also inflate asset prices and destabilize the banks.

All in all an ugly time ahead. Growth that feels very sluggish, without strong employment prospects. This is an era of modesty all round. Get used to it.