As is typical, Wall Street and the media are celebrating a jobs report that is not nearly as positive as the headlines suggest. The continuing decline in the labor force participation rate was at least as important a factor as the new jobs created in bringing down the official unemployment rate to 7.7%.
The participation rate has now dropped to 63.5%, the lowest level since 1981 when the rate had plunged due to a terrible recession. It is important to realize that at that time women had not fully entered the labor force.
Prior to that, a single income was sufficient to support most families. When incomes fell, and living costs rose in the 1970s and 1980s, American women were able to enter the labor force and find employment. That is no longer an option. So the only factors that are now helping families make ends meet are low interest rates, debt accumulation, declining savings, rising home prices, and government transfer payments.
More importantly, the number of people who are no longer even counted in the labor force rose by nearly 300,000 from January to February. This is greater than the number of jobs created. Analysts simply can’t look past the headlines to see these disturbing trends.
In addition, the jobs that were created lean heavily towards the service sector and those industries that benefit most directly from Fed stimulus. The 48,000 jobs created in construction in February were underwritten by the Fed’s $40 billion monthly purchases of mortgage backed securities, which has stimulated home purchasing. An additional 32,000 jobs were added in healthcare, another sector that will do nothing to promote long term economic health. In comparison, manufacturing only added 14,000 jobs.
Many analysts have characterized the February numbers as a “Goldilocks” report that is good enough to signal growth but not so good that it will encourage the Fed to dial down its stimulus. This is optimism in the extreme. Whenever anyone mentions Goldilocks, it’s good to start looking for bears.
The majority of jobs being created now will disappear when either the stimulus ends or rising interest rates bring back recession. When the time comes to pay the piper for all this stimulus, the bill will be large, and the collapse much worse than the financial crisis of 2008.