Curb Your Enthusiasm About An Improved Jobs Market

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The financial markets were ecstatic over the November "Employment Situation" report released by the BLS on Friday. The Dow Jones Industrial Average gained 1.26% on the day. And, the gain was completely real. The Real Dow, which is the Dow divided by the price of gold, went up by 1.54%, as gold prices declined slightly.

So, the BLS report was good news for the owners of America's capital. However, anyone that thinks that it signaled the dawning of the Age of Aquarius for workers should curb their enthusiasm.

All that happened in November was that the labor market (as reported by the BLS Household Survey) made up most, but not all, of the ground that it lost in October. During the past two months, America moved 3,000 full-time-equivalent (FTE)* jobs farther away from full employment.

During those 61 days, our working age population increased by 399,000, but 265,000 Americans fled the labor force, continuing the unprecedented exodus from the world of work overseen by President Obama. While the "headline" (U-3) unemployment rate fell by 0.2 percentage points to 7.0%, the "true" unemployment rate, adjusted to the labor force participation rate of December 2008, rose from 10.9% to 11.0%.

President Obama's so-called "economic recovery" is now 53 months old. During that time, America has moved 1.3 million FTE jobs farther away from full employment, the adjusted unemployment rate has increased from 9.7% to 11.0%, and real household income has fallen by 4.4%**.

OK, so, the latest BLS report showed that America's workers are at best treading water. However, the BEA recently revised their estimate of 3Q2013 RGDP growth from 2.8% to 3.6%, the highest since 1Q2012. Does this provide a glimmer of hope for the labor market?

Unfortunately, we must curb our enthusiasm about this, too. The apparent acceleration of RGDP growth was due entirely to involuntary inventory accumulation.

Nonresidential fixed investment, which is the real driver of economic growth, is not rising fast enough to create very many good jobs.

During the Clinton boom of 1997 - 2000, nonresidential investment averaged 17.73% of GDP. During 2009 - 2012, it was only 15.73% of GDP.

In 2012, America had $269,777 in nonresidential assets per FTE job. The investment of an additional 2.0% of GDP in nonresidential assets during 2009 - 2012 would have been enough to support the creation of 4.6 million additional FTE jobs paying the average wage. This would have reduced the reported November unemployment rate from 7.0% to 4.1%, and the true unemployment rate from 11.0% to 8.2%.

The additional capital investment would have also increased 2012 GDP by $585 billion and 2012 federal revenues by more than $100 billion.

These numbers understate the benefit that greater capital investment would have brought. The vast majority of the jobs created during Obama's recovery have been in industries that pay less than the average wage. This was certainly the case for November.

Creating good jobs takes an enormous amount of capital investment. Most people would rather work for Apple than for Wal-Mart, but it takes $2.3 million to support an average job at Apple, vs. $92,000 for an average Wal-Mart job.

So, what can the government do to encourage capital investment? Well, it can stop discouraging it. Here is the formula for prosperity:

Prosperity = Rule of Law + Economic Freedom + Stable Money + Low Tax Rates + Sane Regulations + Free Trade.

Under Obama, we are going backward in five of these areas and nowhere in the sixth (free trade). So, if you are eagerly awaiting an improved jobs market, curb your enthusiasm.


*FTE jobs = full-time jobs + 0.5 part-time jobs
**Through September 2013, which is the most recent data available



Louis Woodhill (, an engineer and software entrepreneur, and a RealClearMarkets contributor.  


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