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Peak Prosperity?
Here's a look at the long-term employment trend in the United States. It is the combination of total private industry jobs and total government jobs. I have included an exponential trend line in red.
Here's a closeup look at recent years. We're having a real tough time getting back to the long-term trend line even with massive stimulus. We came up way short with our housing bubble attempt. Investors like to speak of long-term historical stock market returns. Well, here's a sixty year trend and it is clearly breaking down. I sure hope that stock market investors aren't counting on a grand employment decoupling theory to save the day.
That was then. This is now.
Note that employment is rolling over and accelerating. They say that employment is a lagging indicator. At the rate it is going down, there is an increasing risk that it will lag us directly into the next Great Depression. Seriously. When I turned bearish in 2004 people no doubt thought I was insane. Well, we're now roughly 20 million jobs below the long-term exponential trend line. It's not all that crazy of a theory these days. In fact, it is now headline news in the Home & Garden section of the New York Times.
April 1, 2009
Making Ends Meet in the Great Depression
AT a time when life in America is beginning to resemble a roller-coaster ride on the way down and everyone is trying to find ways to save money, it may be instructive — both in terms of offering helpful hints and putting things in perspective — to look at how people ran their households during the Great Depression.
Some might argue that from a contrarian standpoint, seeing this in the New York Times must mean the worst is finally over. I am not in that camp. I am even more bearish now than I was in 2004. What miracle technology is going to bring 20 million jobs back?
I'd really like the optimists to inform me. Be specific. Don't just give me hopes and prayers. Productivity miracles and automation are not known for their ability to create jobs, nor is the outsourcing of jobs to China. Right? Without those jobs, I would argue that every other aspect of our long-term exponential growth model is also suspect. Very suspect.
Show me why I am wrong. If I am wrong, I'd really like to know. Further, I really want to be wrong. Please believe me. I should therefore be a relatively easy audience to sway. All I need is one well thought reason why things won't continue to get worse. That's all. The stimulus? Is that it? The stimulus we're borrowing from ourselves and our grandchildren so that we can give it to ourselves? That stimulus? Sigh. You'll need to try harder than that. We were offered plenty of stimulus in 2004. That's what actually turned me bearish in the first place! I can safely say that the more stimulus that is seemingly needed, the more bearish I will become.
See Also:
Trend Line Disclaimer
Source Data:
St. Louis Fed: Total Nonfarm Payrolls: All Employees
St. Louis Fed: All Employees: Government
9 comments:
Stag,
The employment situation is actually worse in my view.
http://research.stlouisfed.org/fred2/series/AWHNONAG?cid=11
Those lucky enough to find a job are working fewer hours. Much fewer. And their overall tax burden has increased (except for the unearned income group).
http://research.stlouisfed.org/fred2/series/AWHI?cid=11
Perhaps a redistribution of all past inflation would be a better solution than more printing. Too few have gathered to much of the inflation. The top 0.5% should either take a hit via deflation or redistribution. Give them the choice publicly. Unearned wealth is not sacred in my view.
Anonymous,
Dividends taxed at a lower rate than wages never did make any sense to me, other than those who write the laws clearly have dividend income that is. Sigh.
Stag,
I can safely say that the more stimulus that is seemingly needed, the more bearish I will become.
They're certainly pulling out all the stops to reflate the ponzi part of our eCONomy. Regardless, I'm pretty sure the majority in the U.S. have seen the peak in their standard of living.
So far, all the extra debt has yet to yield even $1 dollar of additional GDP. And that is in nominal terms too!
Show me why I am wrong
No can do. But, FWIW, Jim Cramer says the bottom is in. And maybe it is for the stock market. But I seriously doubt the bottom is in for the majority. Their nightmares are just beginning - those debts have to be paid back.
mab,
But, FWIW, Jim Cramer says the bottom is in. And maybe it is for the stock market.
A bottom is in. I think we can agree on that. Heck, I never really thought the DJIA would drop below 10,000 in the first place. I figured we'd just stay there for as far as the eye could see. I figured our crumbling currency could hold it there.
But I seriously doubt the bottom is in for the majority. Their nightmares are just beginning - those debts have to be paid back.
The majority of my household was laid off today (or at least half of it). I think your serious doubts have serious merits.
mab,
I suppose I should follow that up by defining what "a bottom" is. Otherwise, we might not be able to agree that this is in fact a bottom.
In my world, "a bottom" is defined in real inflation adjusted terms. If the DJIA hits 64,000 in the next few years but bread costs $64,000 a loaf, that could also be considered "a bottom", unless things deteriorate rapidly from there of course.
Who knows where "the bottom" is though. That's an entirely different concept that would best be taken up in rehab no doubt. I'm fairly sure you have to hit it before you can make any meaningful recovery.
Stag,
Who knows where "the bottom" is though. That's an entirely different concept that would best be taken up in rehab no doubt.
The South Korean and Brazilian stock markets have been rallying of late. Very strong. Of course it's a relative. Check out their currencies:
http://dallasfed.org/institute/update/2009/int0902.cfm
Ouch! Buffett owns the Brazilian Real. He was short the dollar once too.
I think I better stay away from trading currencies. Too many bottoms for me. I just can't afford to trade like the "pros."
Business acumen or investing skill has become a joke against tens of trillions of printing/guarantees from central banks and governments. Not to mention 100s of trillions in derivatives.
mab,
I think I better stay away from trading currencies. Too many bottoms for me. I just can't afford to trade like the "pros."
All those television advertisements aren't luring you in? Good grief. I'd love the opportunity to pay fees and expenses to "invest" against experienced professionals in a zero-sum game.
I'd love it almost as much as sarcasm. Almost.
I can tell you where the jobs will come from in the recovery - they will be service jobs of various and sundry sorts. E.g., ripping out unfashionable granite counters.
Two problems with service jobs: a) they pay less than mfg. jobs. b) productivity growth in services is much lower than in mfg. This will lead to low economic growth even if we get back to 'full' employment.
Anonymous,
You brightened my day. I am a really big fan of subtle sarcasm and the image of a new granite countertop removal business opportunity certainly got a chuckle out of me. I finally broke down and bought a large screen TV last year. When it someday fails, it's going to be too big to fit in my car (assuming we even can still afford cars that is). I'll need help.
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