- by New Deal democrat
Friday’s jobs report was an excellent one for Joe Biden’s Presidential term to end on. In the past 4 years, 17 million jobs have been created. Even if we take out 2021 as being a COVID rebound year, in the past 3 years there were 9.8 million new jobs, an average of 272,000 jobs per month. Meanwhile the unemployment rate declined from 6.7% at the end of 2020 to 4.1%. It rose 0.2% from 3.9% three years ago, ranging from a low of 3.4% to a high of 4.2%, which is still an excellent record. Real average nonsupervisory wages are up 0.6% from December 2020, and 1.3% from December 2021 - not so great, but still positive. And since average wages in 2020 were distorted by layoffs mainly affecting lower income workers, if we measure from December 2019, real wages have risen 4.8%.
Not too shabby.
But let’s focus on a couple of items from last Friday’s report beyond the headlines.
One of the important revelations in the past year has been how the nearly 6 million new immigrants since 2020 have distorted the unemployment rate, even as job growth has been robust. So this month let’s break out this rate for native born vs. foreign born workers. Remember that new workers who can’t find jobs don’t file for jobless claims, and Los Illegales generally do not either.
The below graph breaks out the YoY% change in initial jobless claims (light blue) vs. the total unemployment rate (light red); and compares both with the total of initial + continuing jobless claims (dark blue) and the unemployment rate for the native born only (dark red):
Initial claims always lead, but those unemployed also include people with continuing claims. So while it is less leading, the unemployment rate tracks closer to the total. And in this expansion, the unemployment rate for the native born tracks even closer than that. The inclusion of continued claims helps explain why the unemployment rate never ticked lower YoY in 2024, while the limitation of the unemployment rate shows a much less noisy leading/lagging relationship. As of December, while initial claims were higher YoY by 7.4% vs. the total unemployment rate being up 7.9%*, the combination of initial plus continuing claims were up 3.9% vs. native born unemployment being up 5.7%* (*remember these are percent changes of a percentage).
Now let’s turn our attention to employment in the goods producing sector. Recall that historically, services employment almost never actually goes down more than a fraction except in severe recessions. The decline in employment during recessions is almost all about declines in goods-producing jobs. And goods producing jobs are a leading indicator, always peaking some months before a recession begins:
Goods producing jobs in turn fall almost totally into two categories: manufacturing and construction. In the following graphs I break out the two categories separately, and focus on the recession since the 1980s.
Note that in the mid-1980s manufacturing already had a substantial downturn, but construction jobs grew strongly. It was only when both turned down in 1989-90 that a recession was forecast:
The 2001 recession by contrast was producer-led. Construction jobs continued to grow very slowly into that recession, but manufacturing turned down sharply in advance:
Manufacturing jobs continued to decline during the “China shock” of the 2000’s, but the downturn accelerated in advance of 2007, and was joined by a downturn in construction jobs in 2007:
At present construction jobs are still increasing, while manufacturing jobs have turned down slightly:
It’s helpful to also compare this information YoY, which the next two graphs do in 20 year increments:
The closest comparison to the present is with the 2001 recession, but by the onset of that recession manufacturing jobs were down -2.1% YoY, while construction jobs were only up 1.3% and in a sharply deteriorating trend. At present, manufacturing jobs are down only -0.7%, while the trend in construction jobs has been one of slow deceleration, currently at 1.6% YoY.
While the downturn in goods producing jobs as a whole from a peak three months ago is definitely cautionary, such minor downturns have happened many times before without a recession beginning. In other words, we have a necessary but not sufficient leading indicator at present. Most importantly, at present I am focusing on construction jobs, which seem to be levitating in the face of a downturn in the housing market and a small downturn in total construction spending. If the construction sector joins the manufacturing sector in deterioration, it will be much more concerning. But it isn’t now.
