It looks like you're using an Ad Blocker.
Please white-list or disable AboveTopSecret.com in your ad-blocking tool.
Some features of ATS will be disabled while you continue to use an ad-blocker.
US Jobs: Modest Quantity of Low Quality
by Benjamin Tal
For the past few years, American households’
spending power was artificially enhanced by
precarious sources such as tax cuts and home equity
withdrawals. The hope was that this interim money
would buy the time needed to pave the way for a
standard cyclical upturn in job growth. The problem
is that the current recovery in the labour market isn't
standard. The cumulative job gain since the end of
the recession has been well below the pace seen in
previous recoveries, and the quality of those jobs has
been much worse. Simply put, the US labour
market is not generating enough income to
compensate for the inevitable depletion of easy
money from real estate.
Job Growth Not At Par
Forty-nine months into the recovery is a long enough
period to get a good sense of the real shape of the
US labour market. And the picture that emerges is
not pretty. Since the end of the recession in November
2001, the US economy has generated on average
73,000 new jobs a month. That’s only one-third of the
average monthly job gain seen in the previous three
recoveries. Granted, the current job market revival
had a very slow start, but even now, in the fourth
year of the recovery, overall employment has risen by
only 1.5% — less than half the average pace seen in
the fourth year of previous recoveries .
Not only has the quantity of the new jobs created
during the current cycle been disappointing, but their
quality has been equally poor. Since the beginning of
the recovery, the number of low-paying jobs rose by
more than 5% — six times the pace seen among highpaying
jobs. This performance is reflected in the 10%
drop in our US Employment Quality Index since 2000.
While the quality index has leveled off in the past
two years, it was unable to generate the upward
momentum needed to close the quality gap .
The decline in the quality of employment means that
an already weak job market is even weaker. Note
that when adjusting for job quality (by keeping it fixed
at the 1998 level), the cumulative growth in
employment since late-2001 has been less than 2.0%
vs. the headline number of 2.7% (Chart 3).
The weak showing of the labour market during the
current cycle was translated directly into anemic
income growth. The cumulative real growth in wages
and salaries since the end of the recession has been
just over 6% — the smallest gain of any post-war
recovery, and less than half the average gain of the
past five expansions . Even now, at a more
mature stage of the expansion, wage growth is still
lagging. Inflation adjusted gain in wages and salaries
over the past year averaged 2.7% — miles below
the average growth of 5.2% seen in the fourth year
of the recovery of previous cycles.
Headline Job Numbers Are Even Weaker
When Adjusted For Quality
Income Growth: Too Slow
2006: Not Promising
That’s the past. What about the future? The nature
of job creation in the past few years provides us with
some clues about the job prospects of 2006. And the
prognosis is not promising. Take for example
employment in housing related industries. Since the
recovery began in late-2001, this sector, which
comprises only 9% of total private sector
employment, generated no less than one-quarter of
cumulative growth in overall hiring. But if the housing
market indeed levels off in 2006, many of these jobs
will evaporate. The last time the US housing market
took a breather (early 1990s), housing related
employment fell by 15% from peak to trough. In
today’s levels, such a drop would translate into a net
loss of 1.5 million jobs.
Another star performance during the current job
market recovery has been “Food Services and
Drinking Places” (read waiters, busboys etc), which
accounted for a dazzling one-in-four new private
sector jobs since early 2001 — three times their share
in employment. However, much of the dining out that
generated the demand for those jobs was “on the
house” — compliments of the housing wealth effect.
So, a leveling off in real estate prices will work to
reduce this portion of discretionary spending and the
jobs that come with it.
What’s more, our forecast for further upward pressure
on energy prices will place an additional burden on
energy-intensive sectors (which account for 40% of
all manufacturing jobs) to cut costs. In fact, this trend
is already visible, with energy-intensive firms cutting
0.7% of their labour since 2003 vs. a 3.4% gain in
the rest of the economy. This process will only
accelerate in 2006 as CEOs start realizing that highenergy
prices are here to stay. And given that jobs in
those energy-intensive industries pay relatively well,
the damage would be felt also in the quality of jobs.
The inability of the labour market to compensate for
the energy sting and the end of easy real estate money
means that consumers will take a well deserved
break in 2006. Look for consumer spending to rise by
only 2.4% in 2006, down from 3.5% in 2005.
CIBC World Markets