The Media Liked Friday's Jobs Report, But Markets Didn't
The media liked Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS), but the markets did not. Ignoring the upbeat reported 288,000 increase in April non-farm payrolls, the Real Dow, which is the Dow Jones Industrial Average divided by the COMEX price of gold, fell by 1.77% on the day. This is the equivalent of the Dow losing almost 300 points at constant gold prices.
The markets were likely looking at the Household Survey numbers, which were grim. The number of people with jobs actually fell by 73,000. Only a 291,000 decline in the number of people working part time allowed full-time-equivalent* (FTE) employment to eke out a gain of 73,000 FTE jobs for the month.
Even so, America lost ground amounting to 35,000 jobs with respect to full employment during April, thanks to continuing growth in the working-age population. We ended the month 14.7 million FTE jobs short of full employment, and 1.5 million FTE jobs shy of where we were almost 6.5 years ago.
What was perhaps even more distressing is that, after rising for three consecutive months, labor force participation plunged by 806,000 during April, testing the 36-year-low labor participation rate reached in December.
April provided more proof (as if it were needed at this point) for the "Obama Economic Recovery Formula," which is:
Slow Economic Growth + Expanding Welfare State = Plunging Labor Force Participation + Declining Real Family Income
Although the "headline (U-3) unemployment rate plunged by 0.43 percentage points during April, more than 100% of the decline was the result of Americans fleeing the labor force. Adjusted to the labor force participation of December 2008, the unemployment rate actually rose by 0.11 percentage points during April, to a depressing 10.53%.
So, what is the problem? Slow economic growth is the problem. On April 30, the Bureau of Economic Analysis estimated that real GDP (RGDP) grew at only a 0.11% annualized rate during 1Q2014, far below the 2.60% of 4Q2013, and the 4.07% of 3Q2013.
The BLS numbers said that the number of FTE jobs increased at an annualized rate of almost 4% during 1Q2014. This result is not consistent with the total stagnation of real output during the quarter reported by the BEA. From this point, either RGDP growth must accelerate, or job growth must stall out (or even reverse). In this context, the disappointing April BLS numbers make perfect sense.
The CBO's latest budget projections assume that RGDP will grow by 3.07% in 2014 (4Q/4Q), and by 3.43% in 2015. Given that the highest 4Q/4Q RGDP growth rate achieved during Obama's so-called "economic recovery" to date was 2.77%, and that was back in 2010, it's hard to see how this is going to happen.
In economics, as in life, "If nothing changes, nothing changes." The economy has been growing as fast as the Obama/Bernanke/Yellen economic policies will let it, and this has amounted only to a 2.24% annual rate for the first 4.75 years of this "recovery." This RGDP growth rate has produced an increase in FTE jobs of only 1.08% per year.
Given that America's working age population is growing at almost 1% per year, a continuation of the RGDP and FTE job growth rates produced by this recovery to date would mean high unemployment and stagnant wages would persist essentially forever.
After six years of Obama, we know what we can expect from him: what we already have. And, as the new Chairman of the Federal Reserve, Janet Yellen has gotten off to a disappointing start, given that she seems to be making monetary policy even more rules-free and discretionary than it was under Ben Bernanke.
It would be nice if the outlook for growth and jobs were better, but things can't get better until something changes. Realistically, nothing significant is going to change (for the better, at least-things could easily get worse), until after the 2014 elections. And, even then, the only hope for a better economy is the election of a lot of pro-growth Republicans.
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*FTE jobs = full-time jobs + 0.5 part-time jobs
