Submitted by David Stockman – The Contra Corner Blog
It’s another paint-by-the-numbers Friday. The headline number was predictably rosy, but please don’t look underneath the hood. The jobs engine is still coughing and sputtering.
For instance, among the grand total of 280,000 new jobs reported for May, the entire goods producing sector—-construction, manufacturing, mining and energy—- accounted for just 6,000 or 2% of the gain. And that’s not just a monthly aberration. Employment in the most productive sector of the US economy has been shrinking for 15 years, and is still 2.4 million or 11% below its pre-recession level.
Its worth noting that the average pay in the goods sector during May amounted to $47,000 at an annualized rate—-or in the vicinity of a living wage. Not so with the big gainers in today’s report, however.
According to the BLS, the nation gained 57,000 jobs in the leisure and hospitality sector—-that is, bartenders, waiters, bellhops and hot dog vendors at the ball park. While the talking heads were cheerleading the headline number, of course, they naturally failed to note that from a production and income point of view, these are just one-third jobs. Owing to low hourly rates and only about 26 hours per week on average, the annualized pay equivalent in the leisure and hospitality category is just$16,000.
Moreover, unlike the high productivity, high pay goods sector, the waiters and bartenders sector has been growing for 15 years and accounts for 43% of all the net new jobs gained since the pre-recession peak. That’s right. According to the BLS establishment survey there were just 3.7 million more jobs in the entire US economy during May than at the pre-recession peak, but fully 1.6 million were in the bread and circuses economy.
Moreover, another big dollop of the gain was accounted for by retail clerks and shelf-stockers (31k) and temp employment agencies (20k). Average annual pay equivalents in these categories are well less than $25,000 because by definition these positions represent part-time work and episodic employment “gigs”, not regular jobs in the traditional sense.
Indeed, the archetype here is the Wal-Mart “labor scheduling system” which atomizes jobs into 15-minute labor units. Yet the latter is only a slightly more sophisticated and high tech form of the manner in which much of the service sector slices and dices its labor supply. So there is really no point in counting payroll slots per the BLS establishment survey because it is a classic case of apples, oranges and cumquats.
Taken together, the part-time economy categories in this morning’s report accounted for 110k or nearly 40% of the gain—compared to the 2% share of family-supporting jobs in the goods-producing sector. The obvious implication is that what counts is the quality and mix of the jobs report, not the aggregate headline number.
This point is further reinforced by another big chunk of the May jobs gain which was accounted for by what I have termed the HES Complex (health, education and social welfare). Counting the 10k gain in local government education jobs, this segment accounted for another 84k or 30% of the May jobs increase.
The issue here is three-fold. First, average pay rates in this sector at $34,000 per annum are also well below the $50,000 standard which represents a full-time, full-pay median family income. So, again, the headline number is not nearly what it is cracked-up to be.
Secondly, and more importantly, the 32.3 million jobs in this sector are almost entirely “fiscally dependent”. To wit, these jobs are funded by $1.5 trillion of Medicare, Medicaid and other government health programs, more than $1 trillion of government education spending and billions more for day care, foster care, mental and social services and the like. On top of that add upwards of $200 billion of tax expenditures for employee health and related fringe benefits.
The point here is that these jobs consume tax dollars extracted from the productive sectors of the US economy. Accordingly, they essentially represent recycled income, not new production. Or in the alternative, they are funded on the margin with borrowed dollars via government fiscal deficits, and thereby represent the recycling of future income and output.
In any event, the rate of HES Complex job growth cannot be sustained because it will eventually run-up against the fiscal capacity limits of the state. As it happens, virtually all of the net jobs created in the US economy during the last 15-years are accounted for by the HES Complex. The real meaning of today’s report, therefore, is that fully 30% of the gain was attributable to a low-pay, low-productivity segment of the US economy that is most definitely living on borrowed time and borrowed money.
The above graph also goes a long way toward explaining the punk productivity trends that have afflicted the US economy in recent years. As a practical matter, the government’s measure of output in the HES Complex is arbitrary in the extreme. In the case of the education piece, in fact, output is simply deemed to be the sum of inputs such as wages and utilities.
Even in the giant health care sub-segment, the dominance of government programs (now compounded by Obamacare) means that the attributed output does not really represent production of health care at market prices, but just the arbitrary payment schedules of Medicare and Medicaid, which often represent only 10-25% of private payor rates.
So “productivity” in the HES Complex boils down pretty much to statistical noise. In no sector does the government measure productivity directly; its a residual obtained by dividing labor hours by “output” and calling the change in this ratio from one period to the next “productivity”. When you divide a fuzzy “output” number for the health and education and social services sector by labor hours consumed, you get an even fuzzier figure than usual for productivity.
Finally, how in the world does the Fed’s manipulation of interest rates and financial markets spur spending growth and hiring in the HES Complex? The overwhelming share of spending is driven by tax and entitlement laws that automatically generate spending and jobs based on the number of citizens eligible and which apply.
Neither the entitlement laws or the recipients thereof care a wit whether the Fed raises the funds rate in September or 2016 and whether the rate ends up at 1% or 5%.
Stated differently, the overwhelming share of net jobs gains since 2000 have been in the HES Complex, and the latter is utterly indifferent to monetary policy and the fun and games its generates in the Wall Street casino.
So why do we have Jobs Friday? Mainly so that the money printers and their Wall Street friends can take credit for HES Complex job gains that they have almost nothing to do with.
Likewise, the part-time economy jobs come and go as the Fed’s serial bubbles inflate and bust, causing discretionary spending on retail, leisure and hospitality to rise and fall among the top 20% of households which actually have discretionary money to spend. Its hard to see how you can seriously say that these transient, $20,000 and under jobs represent the trend growth of real output and wealth.