Sunday, January 6, 2019

December jobs report was great. What happens when the deficit Bubble pops?

On Friday, we were expecting job growth for the last report for 2018. But it wasn't expected to be this.
Job creation ended 2018 on a powerful note, with nonfarm payrolls surging by 312,000 in December though the unemployment rate rose to 3.9 percent....

In addition to the big job gains, wages jumped 3.2 percent from a year ago and 0.4 percent over the previous month. The year-over-year increase is tied with October for the best since April 2009. The average work week rose 0.1 hour to 34.5 hours.

Economists surveyed by Dow Jones had been expecting job growth of just 176,000, though they projected the unemployment rate to fall to 3.6 percent. The wage number also was well above expectations of 3 percent on the year and 0.3 percent from November.
And if you dig into the actual report, pretty much everything went right in December, and the previous months were also better than first reported.
Total nonfarm payroll employment increased by 312,000 in December. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade. Payroll employment rose by 2.6 million in 2018, compared with a gain of 2.2 million in 2017….

The change in total nonfarm payroll employment for November was revised up from +155,000 to +176,000, and the change for October was revised up from +237,000 to +274,000. With these revisions, employment gains in October and November combined were 58,000 more than previously reported.

(Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.) After revisions, job gains have averaged 254,000 per month over the last 3 months.
That 2.64 million increase in 2018 is the best since 2.71 million jobs were added in 2015, and a noticeable step up from the 2.19 million that were added in 2017. That’s something I would not have bet on with unemployment already down to 4.1% going into 2018, and should make you wonder how much can be squeezed out of this economy (cough-BUBBLE-cough).

Speaking of the unemployment rate, even though it rose from 3.7% to 3.9% was for the “good reason” – the number of people listed as employed increased by 142,000, but the labor force rose by 419,000. Which led to this note in the report.
The labor force participation rate, at 63.1 percent, changed little in December, and the employment-population ratio was 60.6 percent for the third consecutive month. Both measures were up by 0.4 percentage point over the year.
The stock market took off in relief that the economy wasn’t yet in a nose dive, with the DOW gaining back all of the 660 points it lost on Thursday, and added 86 points on top of that.

The bond markets also reflected this, as the 10-year note moved back to near Wednesday’s level of 2.66% after going all the way down to 2.55% on Thursday and nearly took us to the “2-year vs 10-year” inversion that has predicted every recession in the last 40 years. Some of the yield curve is still inverted, but not as severely as it was on Thursday.

Digging further into the number, the job gains were broad-based in both goods and services.

Seasonally-adjusted job gains, December 2018
Construction +38,000
Manufacturing +32,000
Health Care +50,200
Accomodation and Food Services +48,700
Retail +23,800
Administrative and Support Services +23,000

The upward revisions to prior months also should offer relief of fears of 2018 ending on an economic down note outside of Wall Street. But it also means that Wisconsin will likely end up even farther behind during the Age of Fitzwalkerstan than we thought, as it pushes the Walker jobs gap to just below 150,000, and means we needed to add another 6,500 jobs in December just to keep pace.

And that's why I don’t want to hear any member of WisGOP crowing “See? Lower taxes make our economy work faster!” Partly because the came at the expense of exploding budget deficits that we are literally going to have to pay back with interest in the coming years. And while the job and GDP growth for 2018 is likely to be impressive, it falls short of the growth that the country had in 2014 and 2015, as Paul Krugman noted.

I don’t want to hear a WisGOP say a damn word because we have tried the trickle-down/deregulate/suppress wages game here for the last 8 years, and you see the failure in that 150,000-job gap. And given the numbers we have seen so far from both the monthly reports and the “gold standard” QCEW, we likely continued with below-trend job growth for 2018.

And while the topline numbers might make one think things are as good as it gets with these jobs figures (your personal situation may vary), there is one ironic downside to these decent job numbers at the end of 2018. As this strong job burst in December makes the inevitable cutback more severe. Because the more the Bubble is inflated, the more that goes out as it bursts.

When that bubble does pop, any positive numbers Wisconsin may have will turn quickly, barring a sizable change in course with Governor Evers first budget. If the gerrymandered WisGOP Legislature compounds the economic mess with inaction and cuts in the fact of the deflation that the GOP's Tax Scam in DC will cause (and they likely will try), they have to be ones to pay the price, along with the Congress members that cynically tried a one-time bump before the 2018 mditerms that will bite us in 2019 and 2020.

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