Jobs and Sales: No Improvement?

Well we have two of our regular reports and neither is particularly encouraging. Sad to say, but we seem stuck in neutral at the moment.

First: the weekly new claims for unemployment data was released this morning and tells us that claims rose 11,000 last week to 444,000. This is a small movement in the context of the size of the workforce and so we should not be too alarmed. Equally we should not fall for the positive spin being put on it in the cable and other financial news media. They all seem to fixate on the four week moving average – which declined by 9,000 – and are therefore trumpeting an ‘improvement’ in the employment situation.

This is rubbish.

I completely agree we should focus on the moving average. It is, indeed, a much better indicator of what’s going on. Having said that, just as I cannot get disturbed over a 11,000 increase in the weekly figure, I cannot get excited over a smaller, 9,000, improvement in the trend. Let’s all maintain a sense of proportion here.

The weekly claims figure gives us an insight into half of the jobs market. It tells us how many jobs are being destroyed by firms as they cut back or make other changes. Even in the height of an economic boom there will be new claims for unemployment insurance.

The key is the other half of the equation: how many jobs are being created to offset those being lost?

None.

That’s the problem in a nutshell.

The American economy may be slowing down its destruction of jobs: the weekly claims figure is about 250,000 below its peak of last year. So obviously the losses are now coming at a slower rate. So our attention must shift to the creation side of the ledger, where, frankly, private business is doing an appalling job.

As we await the improvement let’s put a little historical dimension to it: a couple of decades ago America needed to generate about 175,000 more jobs than it lost each month in order for the unemployment rate to stay flat. This was due to the steady increase in the workforce being fed by demographics. Fortunately for us that figure has fallen to about 105,000 in recent years. Every month that goes by where we fail to reach that goal is another month that adds to total unemployment. To put this in context the years of the Bush administration, which included a recession, produced only 45,000 a month. So the economy’s job creating ability has been extraordinarily weak for a full decade – this is without the huge shock of the last crisis.

Next we should recall that the economy’s job cycle – the period from its peak to trough of activity – has lengthened remarkably over the last three decades. In the 1981/82 recession unemployment started falling only 2 months after the recession ended. In the 1990/91 recession that lag had increased to 16 months; and after the 2001 recession it was a full 20 months before unemployment began to reduce, and, as I just pointed out, that recovery was extremely poor by historical standards.

Putting this all together, and surrounding it all with the usual caveats, I see no reason to expect either a quick recovery in the jobs market or a strong one. The most likely outlook is a for a continuation of the 2000’s malaise with only a very slow improvement. Those looking for a more rapid turn about have to explain why the economy has suddenly thrown off its steady decline of the last thirty years.

Our unemployment issues are far more deep rooted than those caused by the crisis. They go all the way back to the 1980’s.

This is why I like to talk about longer time spans and the endemic problems that we have accumulated through our neglect of research, infrastructure, education and so on. The jobs problem is both a long term one as well as the crisis driven short term one.

Until we all admit that we will keep looking in the wrong places and at the wrong data for clues about what to do.

The second piece of mediocre news today was the retail sales report for December. Instead of the 0.5% increase being forecast the actual numbers were a disappointing 0.3% decline. This does not augur well for this year’s economy. The drop was widespread and not concentrated in any one sector, which makes it worse. It remains very clear that consumers, for all the flurry of activity around the holidays, are well and truly entrenched in survival rather than expansion mode. The economy cannot sustain a recovery without more of a boost from consumption and this retail sales figure casts quite a gloomy and long shadow over the prospect for such a boost.

These two reports should deflate anyone’s hopes for a sharp, quick, recovery. The issue is not GDP in the near term – most people seem to be predicting GDP growth of about 4.8% in the fourth quarter, almost all of which will be from inventory adjustments and not sustainable activity – it is about GDP over the medium term. That outlook will have to be revised down a little if these retail sales numbers flow through into consumption over the next few quarters.

Unfortunately my assessment of a slow and difficult recovery still stands. I just don’t see any signs of sufficient strength to alter that outlook.