More Jobs Than Ever

Today we got the BLS non-farm payrolls jobs report, which indicates more jobs than ever. The headline missed expectations as we saw 161,000 in jobs gains instead of the 173,000 expected. Because of revisions to the past two months we saw an increase of 44,000 jobs. While my expectations for a miss were wrong, we have seen this report become highly politically charged. People who never look at these reports come up with assertions on the economy to fit an agenda. The best thing is to ignore the bias which can be seen by those who aren’t in finance and try to just look at the numbers.

The trends we have been seeing towards weakening in the labor market are on full display. You can see this in the chart below which shows a peak in early 2015. This is what has occurred in other economic indicators. This is in tandem with the Fed’s labor conditions index which has gone negative. This recovery has been lumpy. The peaks that we saw 2015 are similar to what would be considered a true recovery. Because these positive stats haven’t been consistent and the valleys have been at near recessionary levels, it’s tough to categorize this economic period other than to say it’s disappointing.

Another trend we’ve seen extended is the increase in the “gig economy.” The chart below needs to be explained to understand this massive transition because the chart can easily be misinterpreted. In previous economic cycles when there was an increase in jobholders this meant there was tightness in the labor market. There were too many jobs, so qualified workers had to work multiple jobs to fill the vacancies. During this new period the number of full time jobs is shrinking so workers need to hold multiple part time jobs or work as independent contractors in order to make ends meet. The chart below shows that the number of multiple jobholders is the highest in 16 years.

As you can see from the chart below, we’ve seen two straight months of declining full time jobs and increasing part time jobs. Anyone who is bullish on the economy is ignoring this decline in full time jobs.

That chart doesn’t take into account the full specter of the complete change we’ve seen in how the labor market works. The number of workers not in the labor force increased by 425,000 to 94,609,000. You can see the secular decrease in the labor participation rate below. If all of these people were unemployed, we’d see a disastrous economy in a massive depression. They aren’t unemployed. They have become independent contractors who are jumping from gig to gig. The more gigs they work, the better chance they will be able to make up for what would be a full-time salary. Because this often doesn’t work out we are seeing an economy with lumpy growth which can’t truly be called a full recovery.

The chart below shows the same information in a different manner. Because of the decrease in the labor participation rate, there are now 15.5 million full-time jobs missing in the economy. The unemployment rate being at 4.9% is not an accurate depiction of the labor cycle. Donald Trump and Bernie Sanders would not have received as many votes as they did if the unemployment rate was actually 4.9%. In fact, of the final two candidates in each primary, the only establishment candidate was Hillary Clinton as Ted Cruz ran against the status quo as well. Hillary Clinton is even running as a “change maker” so every candidate recognizes the weakness in the labor market.

Today I saw on CNBC Vincent Reinhart of JP Morgan stating “we are basically out of easily unemployable workers.” This is hogwash because the secular change towards the “gig economy” means we are filled with easily employable workers. They are looking for independent contracts and not full-time work because they’ve changed their viewpoint on how to earn a living. He calls the labor force participation index “the most abused statistic” because baby boomers retirement is causing it to decrease. The chart I have below refutes this claim. It shows unadjusted employment level of those 65 years and over. As you can see it has skyrocketed. The demographics have played a part in this because having more old Americans means more old Americans will have jobs. However, I also think part of this increase is because they have to work even though they may not want to. As I mentioned in a previous article, the average American has $5,000 saved in retirement. If you only have $5,000 saved, you need to work after you turn 65!

Conclusion

            The labor force participation rate doesn’t give a perfect image of the labor market. However, the reason why this is the case is not because baby boomers are retiring like Vincent Reinhart is stating. The reason it is showing a worse situation is because those who would normally working full-time have switched to become independent contractors. Overall, this still has a net negative effect on the economy, but it’s not as bad as the statistic indicates. The idea that there isn’t slack in the labor force is nonsense. Because of the shift to independent contractors, there is less of a limit in the amount of work people can take on. It is a variable situation meaning independent contractors are always looking for new projects.