Level of U.S. Employment Still Under Historical Trendline

March 12, 2018

The growth of U.S. nonfarm payroll employment in the 1980s (i.e. between December 1979 and December 1989) was 1.841% per annum or virtually identical to the 1.837% per year pace in the ensuing 1990s. The similarity of those figures covering the final fifth of the twentieth century establishes a long-term trendline entering the current century.

The passage of time through Y2K (December 31, 1999) was indeed transforming for the U.S. economy but in a different way than the catastrophic technological breakdown that had been feared as that date approached. Instead, America experienced a dramatic departure afterward from its historical jobs growth trend. An 8-month recession in 2001 was followed by a recovery that was atypically soft in its early stage, and then came the Great Recession. Between end-1999 and February 2010, a span of ten years and two months, U.S. employment actually fell by 806K, and the upturn in jobs that finally ensued in early 2010 began at a very tepid pace for that year and 2011.

Had U.S. jobs since the end of 1999 adhered to the 1.84% per year historical trend, the level last month would have been 181.757 million. The actual level of 148.177 million was still 33.58 million workers below the trendline.  Moreover, annual jobs growth of 1.84% equates to 227K per month, which is just 13K less than the actual 242K average increase over the three months through February. The hole dug during the lost decade may not be deepening further, but it isn’t refilling quickly. There is not a lot of recent history of even three months in a row of jobs growth of 227K or more. Employment, for instance, went up 167K per month in the prior three months to November 2017, 217K per month in the previous 3 months to August and 134K per month in the three months to last May.

Viewing on-year changes, the growth in employment wasn’t faster last year than in the four prior ones. Over the statement years running between successive February’s, non-farm payroll jobs grew 1.03% in 2010, 1.86% in 2011, 1.53% in 2012, 1.61% in 2013, 2.33% in 2014, 1.79% in 2015, 1.70% in 2016 and 1.56% last year.

Because of low productivity growth and a slower rise in the number of two-income households, one would not expect the economy to sustain the kind of growth in jobs seen over the last three months and during both the 1980s and 199os without soon experiencing accelerating wage and price pressures. The low 4.1% unemployment rate has been cited as separate proof of a tight labor market. But what if the alternative unemployment plus underemployment rate, which at 8.2% still remains elevated, is a better indication of the current tightness of the labor market? On-year growth of just 2.6% in average hourly earnings also portrays a labor market that is far from drum-tight.

A comparison of theoretical jobs growth at the 1980s-1990s pace to the considerably lower actual current level of workers provides a glimpse into why it has been so long for demand-pull and cost-push inflation to resurface. If price inflation in fact climbs to 2.0% or above in the coming year or two, such is apt to stem from an entirely different source, namely the imposition of more and more protective tariffs, which hurt consumers by raising the costs of imports and domestically made goods that utilize imported parts and materials.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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