Yves here. I don’t agree with Wolf’s “monstrously overstimulated” thesis, as in inflation being due to too much spending, as opposed to too many fragile supply chains breaking and producers and retailers thus being willing and able to charge more for smaller amounts of product. And despite economists using words like “transitory”, we could stay in this mess for quite a while. But the point about jobs and the number of workers who haven’t come back to work is very important and not enough discussed.
Record GDP, record consumer spending, record private investment, but the number of workers accomplishing these feats is down by 4.7 million.
The jobs report’s two components – the survey of 60,000 households and the survey of 697,000 individual worksites – came back together today, after having diverged in September in a way that had caused a lot of premature hand-wringing about the labor market.
Households reported that the number of people working, including the self-employed, rose by 359,000 in October after having jumped by 526,000 in September, and by 509,000 in August, for a total of 1.39 million over those three months, according to the Bureau of Labor Statistics today. This is still down by 4.7 million people from February 2020 (red line).
Employers reported that they added 531,000 employees to their payrolls in October. This includes governments, but they shed jobs for the second month in a row. Over the past three months, including large upward revisions for August and September, payrolls grew by 1.33 million employees. This is still down by 4.2 million people from February 2020 (green line):
Something Big Has Changed.
As jobs have struggled to bounce back, and remain well below pre-pandemic levels, the economy overall, as measured by real GDP, surpassed its pre-pandemic record in Q2 2021. Consumer spending surpassed its pre-pandemic record in Q1 2021. Private investment in buildings, equipment, and the like started setting new records in Q4 last year. Retail spending, which is part of consumer spending but doesn’t include services, has been blowing out every record all year.
But the number of people actually working to accomplish these feats is down by 4.7 million. Let that sink in for a moment.
That’s the weird phenomenon: The economy has been monstrously over-stimulated to get consumers, businesses, and governments to spend record amounts of money, and it is creating lots of spending that counts in GDP, and it’s creating lots of job opportunities. But millions of people, for whatever reasons, have chosen not to rejoin the labor force, triggering widespread shortages of labor, materials, and components.
The Labor Force Phenomenon
The “labor force” consists of people who are working or who are actively looking for a job in the four weeks prior to the survey of households and are available to work. Many people are still not looking for a job for whatever reason – many decided to retire or are temporarily resting on their stock-market-crypto-housing gains, while others can’t find affordable daycare centers, etc. If they’re not actively looking for a job, they’re not included in the labor force.
So there were 6.0 million people who said they’d like to have job someday but weren’t actively looking for a job or were unavailable to take a job during the four-week period prior to the survey and therefore didn’t count as part of the labor force. There are always a lot of people in this category, but this was still nearly 1 million higher than in February 2020.
The labor force has increased very little over the past 12 months, after initially bouncing back sharply from the collapse in April last year. In October, it barely ticked up and only partially reversed the decline of September, and it remains down by 3.1 million people from December 2019 – among the amazingly askew post-pandemic-boom charts that show that something big has changed in society:
This squished-down labor force, combined with a smaller number of people actively looking for a job (the officially unemployed), caused the headline unemployment rate to drop to 4.6%.
The labor force that is still short by 3.1 million people, the labor shortages that employers are complaining about, and the record spike in unfilled job openings that employers are trying to fill — all tell different aspects of the same story:
Employers have been raising wages to attract people, confident that they can pass on the costs from those wage increases to their customers, which has triggered the largest wage increases across all industries in two decades…
Employment in federal, state, and local governments fell for the second month in a row, in October by 73,000 workers. At 21.9 million, government employment was down by 909,000 workers from where it had been before the pandemic.
Federal government employment during the pandemic has remained roughly steady outside of the spike during the Census. In October, employment ticked down by 3,000 to 2.88 million.
Employment at state and local governments plunged early on during the pandemic and started to bounce back. But that bounce stalled in August and has reversed some since then.
State governments shed 25,000 jobs in October, most of them in education. After two months of declines, jobs are now down to 5.03 million. Local governments shed 45,000 jobs, almost all of them in education, the second month in a row of declines, now down to 14.01 million:
Employment in manufacturing rose by 60,000 workers – including by 28,000 in the auto industry – to 12.5 million jobs. Payrolls were still down by 270,000 employees, or by 2.1%, from February 2020, as manufacturers are screaming about shortages of materials, components, and labor that prevent them from meeting demand for their products:
Employment in the leisure and hospitality industry jumped by 164,000 jobs in October, as restaurants, bars, hotels, and casinos were offering higher pay and, in many cases, improved schedules in their efforts to attract workers. Some people that used to work in that industry have moved on when the industry shut down. Employment was still down by 1.38 million from the peak in February 2020:
Employment in Construction rose by 44,000, to 7.5 million workers, even as construction companies were struggling with shortages of all kinds of materials that stalled projects and produced a record number of unfinished houses. Employment in the sector was still down by 150,000 from February 2020.