The most closely watched data point
for equity and bond markets continues to be the monthly employment report. Weekly new claims is also closely followed, despite its
lack of relevance with the US economy now in its sixth year of expansion.
Perhaps markets simply don't know where to look for data. In their suspicion
that market gains have been driven largely by Fed policy, stock and bond traders alike have focused on employment as key to the Fed's next move.
The
heightened concern clearly has something to do with the lackluster
growth in GDP since the recovery officially began in 2009. GDP growth has run
plus or minus 2% since 2010, well below its run rate pre financial
crisis. Juxtaposed against this backdrop of tepid GDP growth is the anomaly of rapid
gains in employment. It doesn’t seem to quite square up.
Some have
pointed to the stubbornly low rate of labor participation and its impact in magnifying the decline in the unemployment rate, pointing to U-6 underemployment, still
above 10%, as a more realistic measure of the struggling labor market. But while
the quantity of jobs created has had a meaningful impact on lowering the
unemployment rate, the quality of job creation may best explain this anomaly.
A report prepared by Global
Insight for the US Conference of Mayors found that jobs that had been created over
the past five years, on average, paid 23%
less than those lost during the 2008-2009 recession. Total wages lost in the move to lower paying jobs
were estimated at $93 billion. The same phenomena
was observed in the recovery from the 2000-2001 recession, where the annual wage
of jobs created in the period following the recession averaged $5,000 or 12% less
than those lost in the same sectors in
the 2000-2001 recession.
In the 2008-2009 recession,
where 8.7 million jobs were lost, the annual wage of jobs lost was $61,637. In the recovery that followed, the average wage
of new jobs created averaged $47,171, or $14,500 less than similar jobs held prior
to the recession. While the greatest number
of jobs were lost in the manufacturing and construction sectors, the highest number
of new jobs created were in the relatively low paying industries of food and beverage,
health care and social assistance. These
workers, though employed, are taking fewer vacations, eating out at restaurants
less often and spending less on clothes, health care and other essentials.
If this is in fact what is going on, then the unemployment
report, the data release most closely followed by the markets, might be telling us very little
about the near term direction of interest rates.
