While there can be no doubt that adding jobs is a better outcome than losing them, there remain some trouble spots that bear watching as we move forward.

David Rosenberg hit on some of them in his research note on Friday, and I’ve taken the liberty of replicating some of his charts (click for larger versions), along with adding a couple of my own.

We have almost fallen into wage deflation:

Wrote Rosie:

Consider this to be uncharted territory.  In fact, at $22.47, average hourly pay has not budged at all since the turn of the year — in other words, the wage rate has already begun to stagnate.

Among my favorite charts (homemade, of course) designed to reflect the amount of slack in the labor market is this one, which shows the Unemployment Rate (percent) along with the Year-over-Year percent change in Average Hourly Earnings.  Note the symmetry.  (NOTE:  The Average Hourly Earnings used below is not the same series as used above, hence the difference in levels, though the trend is clearly the same.)

We also found out on Friday that the broadest measure of unemployment — U6 — has ticked back up to 17.1%:

This is the stuff that deflation is made of.

Yet somehow Personal Consumption Expenditures have managed to rise to a new record as a percent of GDP:

One has to wonder, I’d think, how much longer this is sustainable.

Further, it’s clear that businesses have limited (if any) pricing power:


Moreover, the price deflator for the corporate sector was a mere +0.6% at annual rate in Q1 and +0.1% on a YoY basis.  In other words, the corporate sector, notwithstanding the profits rebound, which has been centered more in financials than in industrials, is 10 basis points shy of outright deflation.

Lastly, I venture a guess as to when we will recoup all the jobs lost in the Great Recession — that is to say that we get back to Square One.  If — operative word right there — from here we can produce jobs at roughly the average run rate coming out of the past eight recessions — specifically excluding 2001 and 1990 — we’d be on target for Sept. 2012, a record long jobs recovery.  If we create jobs at the 1990 or 2001 post-recession pace, which seems the more likely scenario, you can tack another 18-24 months on to that.

Category: Data Analysis, Economy, Employment, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “NFP Post Mortem”

  1. franklin411 says:

    History of the US, Since 1980:

    1. Government aligns with business to make war on unions and workers

    2. Government aligns with business to make war on schools, colleges, and educators

    3. Government aligns with business to turn a fast profit by dumping imports in America, eviscerating manufacturing

    4. Government aligns with business to pillage the country with fraudulent lending practices

    5. Government aligns with business to reward the outsourcing of jobs

    Noticing a pattern here?

  2. adeptic says:

    With all this alignment, you’d think businesses would be prospering…

  3. buckykatt says:

    Great charts Barry, thought provoking and shocking at the same time.

    The standard of living we have enjoyed in the US is under attack.

    Can our ‘elected officials’ fix it, or are we on a collision course with the reality of unemployment, debt and overspending?


    BR: The post and charts are courtesy of Invictus . . .

  4. buckykatt:
    My gramps always said things won’t get better until we have another revolution. The rich won’t give up power, or stop class warfare, any other way.

  5. franklin411 says:

    That would only be true if businessmen were more intelligent than chimpanzees. We all know that, sadly, such is not the case.

  6. call me ahab says:

    “Yet somehow Personal Consumption Expenditures have managed to rise to a new record as a percent of GDP . . .One has to wonder, I’d think, how much longer this is sustainable.”

    indefinitely- or until the government can no longer afford to borrow to transfer money to the unemployed and impoverished-

    and following up on Calvin’s statement- regarding revolution- difficult to imagine if people aren’t starving or somehow being trampled upon to the point they start storming the Capitol

  7. antonw says:

    I think the high consumer spending is coming from a store of savings in he underground economy.
    As tis runs out, the trouble begins. Tis would also explain why savings isn’t higher if saving is derived from income minus consumption.

  8. Moss says:

    For what it is worth someone I know told me that a raise and bonus will be forthcoming to them this year (June I believe) after two years of no raises and no bonuses. The no bonuses rules was applied across the board. The no raise rule was applied to anyone making over 100K.

  9. Winston Munn says:

    Newton’s Law of Personal Consumption Expenditures: For every Apple application action, there wil be an equal and sustained personal purchasing action.

  10. Thor says:

    F411 – such vitriolic disdain for your fellow countrymen – that’s the theme I’ve been picking up on from you this last year. If I hated so many of the institutions of this country (not to mention the 80% of the population who disagrees with your narrow viewpoint) as you appear to, I’d be looking to move abroad.

    BR – I’ve seen a lot of forecasts for job growth over the last couple of years – I’m not saying I disagree with any of them, but I’d be curious to see exactly how these forecasts are being created. I know that many of the boomers are going to be stuck having to work long past the time they would normally retire, but as a demographic cohort – because of their sheer size, shouldn’t their retirement over the next decade or so going to have an affect on unemployment numbers? I would assume that immigration to this country has also slowed down quite a bit. If The Great Recession is as large and game changing as we have been told, wouldn’t that affect projections for unemployment?

    Point I’m trying to make is; how reliable are these projections really?

  11. The Curmudgeon says:

    You are another among many thousands of commentators that don’t understand that inflation/deflation are monetary phenomenon. What you are seeing, as the inversely correlated graphs of unemployment rate and wage rate shows, is that when demand for labor is low, its price declines. This is not deflation. This reflects the impossibly simple fact that prices fall for everything, including labor, when the demand falls.

    It would be surprising to see things the other way around, wouldn’t it? Would you expect American wages to be rising, in the face of declining demand? It only just happened once in recent history, when the hyperinflationary monetary regime of the seventies gave us stagflation–high interest rates, high inflation, including a high and rising wage rate, and low real growth.

    All that is happening now is part of a bigger big picture. Extend your graphs on wage rates backward, and you’d find wages in America have been more or less stagnant since the seventies. The inconvenient truth is that the best our wages can or will do is stagnate until the wages of our trading partners catch up to us. Or, we could cut off our noses to spite our faces, and throw up tariffs around every industry so severe until no foreign goods get in. That would be a real quick way to get from being a rich, developed economy to a banana republic, so it wouldn’t surprise me if that’s what F411′s buddies in Congress do next.

  12. Winston Munn says:

    “You are another among many thousands of commentators that don’t understand that inflation/deflation are monetary phenomenon.”

    It’s good to know that Chicago is always going to be well-served by someone pulling out Milton Friedman as a kind of intellectual bumper-sticker.

    Perhaps I am simply naive, but in deflation money increases its purchasing power, and yet the fact that today comapared to 2006 I can buy about 30% more house with the same amount of money is not a result of deflation? Commodities prices and wages require less capital yet it is not deflation? So you are really saying my money is worth the same but aggregate demand slack in the markets have caused price declines in houses, wages, and commodities?

    So, if I grasp this argument, you are saying that it was not deflation but an Invisible Hand that magically made my money more valuable? Hmmm. I suppose that is right. After all, the Tooth Fairy DID turn my molar into a dollar bill when I was a kid, and I never saw him, either.

  13. cfischer says:

    Even at the 1990 pace, If I honestly believed we’d regain all the jobs we’ve lost in 48 months from now, I’d be a lot more bullish than I currently am. As it is, I’m worried about a double-dip after the all the various stimulus wanes and the housing continues to mean revert.

  14. VennData says:

    Inflation is always and everywhere a fiscal problem. The claim that “commentators.. don’t understand” is false, they do understand, and are right. The gold bug, Austrians don’t understand. They don’t understand the temporal aspects of economic man.

    Markets, as we saw Thursday run by machines, are spared that emotion and trade based on the raw supply demand imbalance.

    So then, with all the “money out there,” that the Fed’s been printing (aka buying bonds) then demand for it should be way, way down. Inflation. But there is no inflation. My rent’s down, my grocery bills up for some, down for others. Beer’s the same, Blackhawks tickets up… because of more demand.

    …now if you print a gazillion currency units ala Zimbabwee, you get hyper inflation, but why are they doing that? For fiscal reasons, to pay bills when they have no tax base.

    …never forget: inflation is always and everywhere a fiscal problem.

  15. lalaland says:

    Look at those charts and you’d think people would be downright nostalgic for the Clinton years…

  16. The Curmudgeon says:

    @Winston Munn…

    I really don’t get why the ideological jabs. Is it so important to you ideologically to discredit the Chicago school that you would also impugn a fairly straight-forward definition? Really? How small.

    Let me ask this: You can get quite a bit more computer today for the same $2,000 than you did ten years ago. Is that deflation, i.e., is that due to a movement along the demand and supply curve for money? No. It’s a cost reduction due to efficiencies in manufacturing. But it is a price decrease.

    The point is, asshat, not all price declines are deflationary. In my view, the wage price decline/stasis is one of those instances. It is not because the unit of account (i.e., money) moved along its own demand curve (which would be deflation/inflation), but because the demand for labor declined.

    If you don’t even understand the problem, you will never get the prescription right, and seeing the world through ideological blinders will nearly always prevent gaining a proper understanding. So, rail all you wish at the Chicago school or Milton Freidman or whomever. Milton Freidman wasn’t trying to defend an ideology when he simply and succintly pointed out that inflation is a monetary phenomenon. It is. Prices may rise or fall for many reasons, but it is only inflation/deflation when they do so because money itself has moved along its own supply/demand curve.

  17. I am with Winston.

    Spare us the Milton Friedman bullshit . . . How about some original thought ?

  18. The Curmudgeon says:

    @Venn Data:

    You are correct that inflation is a fiscal problem. But it is a monetary phenomenon.

    The “demand” for money is determined by its price (i.e., interest rate)/supply intersection. If you expand the supply, its price should go down; which with negative real rates, is exactly what you see right now. How that works through and manifests in prices for the various markets that use money as an exchange and store of value depends on the particulars of the markets. Stable prices that would otherwise have fallen (absent the low price/high supply of money) is inflation.

  19. Julia Chestnut says:

    Funds in the current GDP numbers are mislabeled “consumption,” when more accurately they should be labeled “government transfers.” Because more and more people have been beggared, more and more people spend each and every penny that they earn. They don’t have a choice. The uptick in consumption as a percentage of GDP, in this instance, reflects both a collapse of other sources of GDP in the numbers and the increased role of subsistence payments and tax refunds in propping up the economy. Wealth has become concentrated to the point where the rich can’t spend enough of it to keep us afloat. The numbers reflect that the destruction of the middle class is almost complete.

    What you should think about, however, is that without a stable middle class, countries are not particularly economically or politically stable. Living in a banana republic isn’t all it’s cracked up to be.

  20. Julia Chestnut says:

    @ The Curmudgeon: actually, it’s called product life-cycle theory. There’s an equation that describes the decrease in price of a technology on its way to becoming obsolete/replaced by a new technology and along its penetration into a market.

    Can’t remember who wrote the seminal pieces on product life-cycle theory, but they very convincingly explain why you can get more computer now than you could back in about 1990 when I last read scholarly articles on economic theory. There’s no mystery there.

    The economy is bifurcating between market items that are necessities and those that are discretionary, and between those items that the rich can afford to desire and those that the poor cannot concern themselves with. In the former, there is price inflation (or a reduction in quality); in the latter, there is price deflation corresponding to the quick and ongoing contraction in the size of the population that can afford discretionary items. Looking at price effects in aggregate masks these trends.

  21. Winston Munn says:

    @ The Curmudgeon:

    You are right – I apologize for the tone of my comment. But when someone makes an argument of assertion based on an appeal to authority it sounds to me like belief rather than reason.

  22. willid3 says:

    The Curmudgeon, i seem to recall that unless wages go up, economists won’t call some thing inflationary. but i suspect you are correct. what we have is not deflation. nor will it become inflation because while there maybe lots of money in the economy in way, its all in the banks and not going any where to do any thing other than taking up space, and becoming capital for those banks.
    problem is in an economy dependent on the consumer (some say 70% i actually think its much higher. cause i doubt there is much buying by business for any thing if they have no customers. and at some point some ones customer is the consumer or the government. and there are not others). if consumer’s wages are
    collapsing (as they have been as you pointed out. and many others have to since the 70s with only a small up tick in the mid 1990s) just what is goi9ng to drive the economy now? have the business ‘leaders’ and political leaders so messed it up that it can only tank? if we think we can compete on price with the developing countries that is what will happen, as we can do nothing else but equalize wages, which will equalize the business environments too. that means less sales, and lots less profits for business.
    not sure business leaders are chimpanzees. maybe lemmings though as they all will follow each other over a cliff. bad part is they will take the rest of us with them.

  23. The Curmudgeon says:


    I don’t know what’s gonna happen, but the forces that are keeping wages down in the US are far more powerful than the Fedres is at manipulating the money.

    Agreed that the consumer is the driving force in our economy, but we can’t just sell McMansions to the Chinese (follow the money from US to China back to US and into the housing market) to fund a trade deficit such that the US consumer supports the world’s economy. In some respects, no matter what the nominal wages are, the American worker is no better off than the Chinese peasant–he just carries more debt. Both are wage slaves, manipulated by the system to enrich their political and economic elites. Maybe we need to start cross-border unionization. Wage slaves in America have more in common with wage slaves in China than either has in common with their respective plutocracies. Cross-border unionization–there’s an idea that Marx would love, and even if I admire Friedman for his lucid understanding of money, its a neo-Marxist idea that I could embrace.

  24. The Curmudgeon says:

    @Winston Munn:

    Apology accepted, and accept mine for the “asshat”. Even as curmudgeonly as I can be, I try not to make things personal, but in that instance, I failed.

    @Julia Chestnut:

    Yes, I’m well aware of the life-cycle product theory, the point being that there are other reasons for a decline in prices than just deflation.

  25. willid3 says:

    The Curmudgeon , i don’t either. i just think if we try to keep what we have been doing for almost a decade we are looking at a the great equalization of the world’s economies. and we will be just a developing country. just wonder if we aren’t reinventing the early 20th century, late 19th century world. but with a few twists

  26. Greg0658 says:

    “when demand for labor is low, its price declines. This is not deflation. This reflects the impossibly simple fact that prices fall for everything, including labor, when the demand falls” .. lest this fact slipped the mind I’ll remind .. prices fall for everything, including labor, when the commodity is in high supply

    I also know we have many jobs and functions in our society that could easily disappear and no-one would give much a hoot about in a week except for the affected by the loss of the paycheck. That only compounds the problem with abundant workers.* Some will even welcome such changes as less inherant costs to everyday reception & everyday business of consumption of stuff. Say, like if cable tv went from 90 channels to 45.

    So “We have almost fallen into wage deflation” .. answer of years past .. but difficult in a connected and politically correct world with a hot bed of technology .. WAR both civil and world = burn some people and required infrastructure .. walla > needs come back.

    coda* – Sure the loss of consumption of other commodities and services -because of less consumers will ebb & flow costs (+&-) .. depends on lots of stuff .. but point made. I think we have been living in benevolent times. I think it was for price support to build the bubble – until now – when the tide of benevolence is shifting .. I’ll say it in a tv theme song “6 Million Dollar Man” http://www.youtube.com/watch?v=K7zNY0I5JNI

  27. [...] fact, we’re possibly only months away from wage deflation at the average level, and are likely already there at the median [...]

  28. Greg0658 says:

    visited the links DD and like – Henry Ford quips – A business that makes nothing but money is a poor business. There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.

  29. [...] Nobody has any degree of pricing power these days. In examining Friday’s jobs numbers, Barry Ritholtz has the charts. [...]

  30. thumbcharts says:

    While I would agree that analysis of indicators like capacity utilization and hourly earnings can seem to show that deflation is the more likely outcome, I would point you to an interactive chart that clearly shows that in an era of fiat currencies, politicians will always choose inflation over rampant unemployment.

    Between 1939 and 1970, inflation and job growth were almost identical (Inflation +170%, Employment +138%). Between 1970 and today, employment is up an anemic 83%, while inflation is up a whopping 476%.

    As we’ve seen today with the trillion dollar infusion by the EU, our brethren on the other side of the pond are no different…


    For the entire inflation series:


  31. bondjel says:

    I’m with franklin411: I believe all sorts of extremely unhealthy trends began during Reagan’s presidency. But I notice that Pers Consmptn Exps as a % of GDP really started to take off shortly after he took office and I wonder why. Why did people then begin to spend like there was no tomorrow?

  32. [...] As such, even if you were lucky enough to get the average 1.5% increase in your pay, your costs grew by a greater amount. And the downward trajectory in average wage increases is getting worse, not better: [...]