On the back of Bill Gross reportedly saying that the Federal Reserve’s employment-dominated models are outdated, I think it’s time to take a look at the yoy jobs picture to see what takeaways we have. Below are the major job categories outlined by the BLS, and my thoughts. I chose to look at non-seasonally adjusted data (since we are looking at Dec thru Dec), but the seasonally adjusted data is within 0.1pp for most categories. Total non-farm payrolls was up 2.707 million (or 1.9% yoy) on the year. That’s a healthy 226K jobs per month. That’s pretty good considering the labor force is only grew at 1.1%. As a result, the unemployment rate decreased 0.6% (from 5.6% to 5.0%).
- All the sub-categories, except “Mining and Logging” were up. Even Manufacturing.
- Mining and Logging account for 0.6% of all private jobs and 0.5% of all non-farm jobs. I’m not saying those 781K employees in M&L or the 14.4% drop in employment in that sector aren’t important. The trajectory of the drop is probably even worse. But this is not exactly what the future of America was going to be based on.
- The story used to be the Chinese were taking our manufacturing jobs. Now apparently Chinese manufacturing weakness is taking our jobs. Perhaps we just need to admit the days of needing a lot of people for manufacturing is over.
- Service-providing jobs account for 84% of all private payrolls. Goods-producing is only 16%. Service-providing jobs had a particularly strong 2.4% growth.
- Some may argue that the job gains are mostly in “low-wage jobs” (waitresses, couriers, Walmart, etc). But part of it is the way the world is headed (eating out more vs cooking at home, online shopping, Walmart being Walmart), part of it is disintermediation, and part of it is the tens of thousands in benefits you can get from the government for making less. This is just how it is.
When Walmart says they are having a hard time retaining employees so they need another wage increase, that to me does not signal a collapsing economy. Now I’m not saying we couldn’t lose those jobs (and others) in a recession. But I keep hearing big headlines on oil, on distressed debt, on EM, on China and on the Middle East. I’m not so sure any of this matters as much to an economy that is 84% service-oriented. Yes, some of those service jobs are related to company prospects related to commodities and/or other countries. But the US economy surprised me last year.
My over/under (at the start of last year) on the average payroll last year probably would have been around 175K. We somehow did 50+K better in 2015. 175K also happens to be my over/under for 2016. I’m not so sure we couldn’t surprise again to the upside this year. The markets are trading like we’ll be at 125K. While there is downside risk to the economy, I’m not so sure that’s where I want to place my bet right now.
Just because China is slowing down doesn’t mean the world is doomed. While things may look bleak now, rates are still very low and new sources of growth are constantly popping up. Just this past week, there was an article on how the Arctic was worth $1 trillion, how Iran is open for business (as is probably Cuba), the development of Indian smart cities, the redevelopment of rail infrastructure in Myanmar, etc. There are opportunities for growth out there. With (still) accommodative central banks, you just need to find it. So somewhere between the FOMC members’ rosy assessment and the Chicken Littles of the world is the reality.