The 52 million U.S. Employment Hole

July 14, 2020

By coincidence, the growth of nonfarm payroll employment between end-1979 and end-1989 almost exactly matched that which occurred between end-1989 and end-1999 (a.k.a. Y2K). Over that entire last fifth of the 20th century, U.S. jobs expanded at a 1.84% per annum rate, and in this first pandemic year of 2020, we are another score of years and six months further down the road.

In December 1999, there were 130.5 million U.S. workers.  The new decade that followed began with a mild recession, followed by a slower-than-normal expansion of jobs in the ensuing business expansion that was rudely quashed by the Great Recession. Even after that downturn ended in mid-2009, employment staggered for another five quarters. Had employment after December 1999 maintained the 1.84% per annum trendline of 1979-1999, the number of nonfarm workers would have totaled 158.6 million in September 2010. Instead, the actual jobs level that month of 130.4 million represented a gap of 28.2 million workers from trend.

By the time that the presidential baton was handed off from Obama to Trump in January 2017, the 29.6 million difference between actual employment (145.4 million) and the 1.84% per annum jobs growth vector (175.0 million) had hardly changed any further.

Now fast forward through time to the present, and one finds nonfarm payroll employment in mid-2020 at 137.8 million. But the trendline has raced ahead to 189.7 million workers, yielding a much greater 51.9 million differential between the actual level of jobs and the level such would be if only employment had risen in the first fifth of this century as much as such did during the last fifth of the 20th century.

Before the pandemic and as unemployment plumbed to a multi-decade low of 3.5% last November-December and again this year in February, U.S. inflation had failed to accelerate in a sustained manner as widely expected by private analysts and Fed officials. Average hourly earnings were just beginning to pick up but hadn’t attained a pace that one would ordinarily associate with the medium-term target of 2.0%. The wide differential between actual employment and its prior trendline suggests a level of slack in the economy prior to the pandemic that was much larger than the jobless rate was suggesting. Continuing benign U.S. inflation looks more understandable from an examination of the level of jobs within its historical context than the alternative focus on unemployment.

With that in mind and seeing the employment gap suddenly stretching all the way to 52 million workers now, the implication going forward is that risk to inflation is biased even more sharply to the downside than before. When President Trump took office in January 2017, the consumer price index was showing a year-on-year increase of 2.5%. Since then, inflation has averaged 1.8%, but at the moment it is only 0.6%. The chances of a V-shaped business cycle are looking far more dubious than thought back in March and April, and soaring new Covid-19 infections in many states has enhanced the possibility of a multi-dip business cycle.

That hasn’t stopped concerns being expressed about inflationary repercussions of maintaining expansive fiscal and monetary policies. One worry is the gargantuan federal deficit, but such has been elevated for years without lifting inflation back to its desired level. The correlation, let alone causation, between the fiscal imbalance and inflation just isn’t there when economies are operating well below full capacity. Current unemployment of 11.1% is above the Great Recession high of 10.0% and post-depression peak of 10.8% in November 1982, and the U6 unemployment plus underemployment rate is at a whopping 18.0%. Turning the fiscal spigot way down now could be a catastrophic mistake.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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