The Wrongologist

What’s
Wrong Today:

December’s
BLS
unemployment report showed that we gained 155,000 total nonfarm payroll (NFP)
jobs. October was revised down by 1,000 to 137,000 jobs and November was
revised up by 15,000, from 146,000 to 161,000 jobs.

While some
in the press are saying that this is a good report because it exceeded
economist’s expectations, it represents more of the very weak job growth that
America has experienced for the past two years.

It is time
to bring more perspective to the problem of unemployment in the US: Our ongoing employment crisis just hit its
5 year anniversary:

Since
the start of the Great Recession in
December 2007, we are still down about 4 million
total jobs, of which 3.51 million are private sector jobs (shown above).

In 2012,
the US gained 1.84 million jobs. In 2011, the US also gained 1.84 million jobs.
So, job growth did not change this year. This tells us that we will need 2 more years of the same growth in jobs to
get back to our pre-recession jobs level.

But
even that won’t be enough:

• We
  have about 12.21
  million people currently out of work, of which 4.8 million are the long
  term unemployed. These are Americans who
  really need a job.

•  About
  2.7 million people
  are expected to graduate in 2013 with Associate’s or Bachelor’s degrees. Some
  of them already have jobs, but they all expect to move to a better position
  with more education. This means we
  need to add about 225,000 jobs/month just to employ these graduates.

To
meet these jobs requirements, we need to average a growth of much more than the
150k jobs per month we have seen for the past 24 months. Yet only 3.7 million jobs are available
in America, against the current need of 12.2 million.

So,
December’s 155k just doesn’t cut it as a good monthly jobs number. We need a massive
rethink of jobs creation.

Will
anything change? The status quo suits the Corporatos
just fine. Corporate profits are the highest in history, the Dow Jones average is
within a
few hundred points of the all time high that we hit in 2008.

But it could easily take 5 more years to return to the number of jobs we had in America in 2008.

And
that would probably still leave us with 6+% unemployment rate, since we will
continue adding new entrants to the workforce between here and 2018.

All this means we are
looking at another 5 years of low economic growth. That means lower tax receipts from
individuals, not simply because we made the middle class tax cuts permanent,
but because median income is stagnant and number of our citizens who are
working is also stagnant:

In
fact, the ratio of people working to total population hasn’t been this low
since October of 1983.

So,
low economic growth, high unemployment, stagnant wages and tax receipts, persistent
calls to weaken the social safety net: It seems very shortsighted to be talking about weakening the safety net when we have 12+ million out of work, another 5+ million working part-time who are seeking full-time work and 40+ million people below the poverty line.

Permanent gridlock in Washington brings nothing concrete to the discussion either.

All
this will lead to slower GDP growth than we have seen historically:

This
chart shows that real GDP growth has been less than 2% annually in the past 20+
years. Imagine what society will look like with growth that averages half that level.

Our
economy is highly dependent upon consumption. More than 70% of what the US GDP
is personal
consumption. Remember the formula for GDP:

C
+ I + G + (X – M) = GDP

C
is personal consumption, I is Private Investment, G is Government Expenditures,
and (X-M) is exports minus imports.

Personal Consumption is more than consumer purchases. It
includes health care expenses, financial services and much more. In 2011, Personal
Consumption was $10.73 trillion of the $15.10 trillion of GDP. Personal
Consumption is divided into goods and services.

Goods contributed
$3.6 trillion in 2011, nearly 25% of total GDP. This includes durable goods, such
as autos and furniture at 7% of GDP. It also includes non-durable goods, such
as food, clothing and fuel. This was 16% of GDP.

Services were $7
trillion of GDP 2011, 46% of GDP. This is much larger than in the 1960s,
when services contributed less than 30% to the economy. A large driver of this
growth has been the dramatic increase of the financial services and health care
industries.

It is starting to look like we have
to expect lower GDP growth and continued high unemployment.

Better
economic conditions are not going to happen spontaneously. Change isn’t going
to be given to us by those who enjoy
the benefits of the status quo. Their
methods have been operating for 40+ years and if measured against the gains made
by the average citizen, have failed. 

And there are consequences to their failure, stupidity and greed.

Can we get past the status quo to create a better world, a world
in which the vast majority are healthier and doing work they care about?

Do we want a society without broad participation
in prosperity? Where economic growth is measured at 1% per year?

 

Next, we will look at what a low
growth, high unemployment future means for America.