The US Economy: Myth and Reality

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Don’t drink the Kool-Aid.

The administration is boasting about a jobs report that is at best mediocre. The facts  are:

  • We added 200,000 new jobs last month. Prior to the 2008 crash, we the standard for a robust economy was 300,000 jobs.
  • Wages are stagnant.
  • The number of workers holding multiple jobs to make ends meet is increasing.
  • The number of people who are underemployed (working part time when they want full time employment, or at a job below their qualifications) is static.
  • Labor force participation remains at or near the low following the 2008 crash.
latest_numbers_LNS11300000_2007_2017_all_period_M07_data

Source: Bureau of Labor Statistics

As I’ve stated previously, the unemployment number is an artificial misrepresentation of reality. That number excludes anyone not activity seeking work. After 26 weeks, when unemployment insurance expires in most state, there’s no reason for anyone to report whether they are looking for work or not. These “long term unemployed” aren’t included in the unemployment rate calculation.   That’s why the labor force participation is the more meaningful number. (By the way, other countries don’t misrepresent unemployment the way the US does.)

The real numbers are buried in data reported by the Labor Department.

US non-institutionalized population:          255,155,000
In labor force:                                                  160,494,000 (b)
Unemployed in labor force:                              6,981,000 (a)
Not in labor force:                                             94,657,000
Want job, not in labor force:                             5,420,000 (c)

The unemployment rate as reported is a/b. That’s currently the widely reported 4.3% figure.

The more accurate rate is (a+c)/(b+c).  That’s 7.4%.  And that number doesn’t address under-employment.

A classic case of underemployment is the insurance industry. The industry primarily uses unsalaried “independent” agents (people who get paid on a commission basis) and the washout rate for first year agents exceeds 98%. Yet, until they washout, the government considers them employed.

Why the high washout rate? Well, as a ballpark, with supplemental insurance (accident, cancer, etc.), an agent makes $100 per policy sold. For a first year agent to make an income that exceeds poverty level requires the sale of 150 policies, not impossible, but not easy to do when there are millions of others trying to do the same thing, and a lot of viable prospects already have policies with which they are satisfied.

Another contrary indication about the economy is per capita gasoline use.  It’s down 18% from before the recession in 2008.  Of course there are several other factors contributing to that decline:

  • Improvement in car fuel economy and introduction of hybrid cars
  • Re-urbanization, and millennials move into city centers, with a reduction in car ownership
  • Replacement of car ownership with Zipcars, Uber and Lyft
  • The growing population of seniors who drive less
  • Replacement of face-to-face contact with social media and Skype

However, a key element underlying these factors is that cars have become unaffordable for many consumers. Between car payments, parking and insurance, the cost is simply too high for too many.

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Recovery? What recovery?

Prudence says to prepare for a slowdown in housing and another round of layoffs. 

Unless you see a mushroom cloud on the horizon on some future morning.

In that case, the economy will be irrelevant.

 


Sources:

  1. Pedro Nicolaci da Costa, “The number of Americans holding multiple jobs is sending a ‘troubling’ message,” Business Insider, 8 August 2017. https://www.aol.com/article/finance/2017/08/08/the-number-of-americans-holding-multiple-jobs-is-sending-a-trou/23070442/?brand=finance&ncid=txtlnkusaolp00002412
  2. https://data.bls.gov/timeseries/LNS11300000
  3. Jill Mislinski, “Gasoline Volume Sales and our Changing Culture,” Adviser Perspectives, 24 July 2017. https://www.advisorperspectives.com/dshort/updates/2017/07/24/gasoline-volume-sales-and-our-changing-culture
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