The US employment figures for August that came out on Friday put a bit of a dampener on the growing euphoria in the business media that economic recovery is now sustained, not only in the US, but also in Europe and Japan – after over four years since the trough of the Great Recession in mid-2009. Unfortunately, for that view, the US employment rose just 169k in August, with July being revised down to 104k and June down to 174k – three weak numbers in a row. Against the hopes of 200k+ each month, the last three months are averaging just 148k. That’s nowhere near enough to ensure a steady fall in the unemployment rate back to so-called full employment (which now means about a 5% unemployment rate in the US), let alone to the target that the Federal Reserve has set to start ‘normalising’ monetary policy (i.e ending QE and beginning to raise interest rates). At this rate, the Hamilton Project at the Brookings Institution’s jobs gap calculator reports that the US jobs gap won’t close until after 2025. That’s over 12 years from now!
Sure, the official unemployment rate fell to 7.3% from 7.4% in the previous month, the lowest since December 2008. But this was only because fewer Americans are seeking work as they have given up looking. The labour force participation rate fell to a 35-year low (graph). And the employment rate — the share of working-age population with any job — also fell. If it were still at January 2009 levels, the unemployment rate would be 10.8%. As RDQ Economics cautions, “This continued fall in participation should give pause to those who argue that the decline is cyclical and will be reversed.” The Economic Policy Institute points out that there are “3.8 million missing workers … workers who have dropped out of, or never entered, the labor force due to weak job opportunities in the Great Recession and its aftermath.” If they were in the labour force looking for work, the US unemployment rate would be 9.5% instead of 7.3%.
Moreover, the median unemployment duration actually increased to 16.4 weeks from 15.7 weeks in July, while the share of the unemployed without work for 27 weeks and longer jumped to 37.9% from 37.0%. So there are 3 million more long-term unemployed Americans today — four years after the end of the recession — than before the recession. And here is the most amazing statistic: so far this year there have been 848,000 new jobs. But of those, 813,000 are part time jobs – an incredible 96% of the jobs added this year were part-time jobs. There is an increasing lost generation of Americans who may never have a proper job that brings in a living wage (I’ll return to this theme in a future post).
It’s true, however, that employment is a lagging indicator – it looks backward to what has happened and not forward to what will happen. And the consensus is that faster growth is on its way, and along with it, a rise in real incomes and employment. This optimism is based on the significant rises in the Purchasing Managers Indexes (PMIs) around the globe in the last few months. The PMIs, as I have pointed out before in this blog, are the best high-frequency measures of the level of activity in capitalist economies that we have. They are really measures of what company managers think about the state of their industries and markets. They are not measures of actual sales or production. Thus they show what might happen in the future. I have developed a composite indicator for the US PMI (manufacturing and services combined). For the first time, in August, that indicator (data from the ISM) went close to what I consider is boom territory (graph below). So perhaps the US economy is finally on its way up?
Similarly, across the globe, PMIs rose in August. But let’s be careful. This does not mean every region of capitalism is expanding. It means that each region is now doing better (or less worse than before), according to the PMI indicators.
Also, the OECD announced its latest update for forecast real GDP growth in the advanced economies of the OECD, revising up their measures slightly.
The OECD reckoned that growth was “proceeding at encouraging rates in North America, Japan and the UK” and the Eurozone was “out of recession, although output remains weak in a number of economies”. But, although some advanced economies looked like growing faster in the rest of this year than previously thought, some larger emerging economies were slowing down: “the numbers for advanced economies are a tad higher, and for France and the UK more than a tad higher”, but the average rate of growth in emerging economies would be about 1% point a year lower than in the recent past. And remember what the OECD is talking about is growth of about 2% a year or less for the major economies (see graph above), hardly a ringing endorsement of economic strength. For 2013, the OECD now thinks US growth will be 1.7% with growth rates of 1.6% in Japan, 0.7% in Germany, 0.3% in France, -1.8% in Italy and 1.5% in the UK. Wow!
The IMF has also begun to raise its forecasts a little for the advanced capitalist economies. But the IMF has dropped its rosy view of the emerging economies which it had considered were the ‘dynamic engine of the world economy’, instead noting that “momentum is projected to come mainly from advanced economies, where output is expected to accelerate”. It is now admitting that the faster growth in economies like Brazil, India, China etc was partly a product of a flow of cheap credit (fictitious capital as Marx called it) into the emerging economies. The huge expansion of credit generated by central banks printing money had not gone into new investment in the productive sectors of the advanced economies, but instead into buying financial assets (bonds and equities) or into the coffers of the financial sectors of the emerging economies, where it has fuelled a property and stock market boom.
But now the PMI indexes for key emerging economies don’t look so rosy – with slowdowns reported in India, Indonesia and Korea, while greater China is steady.
This optimism about the UK comes from a batch of recent data that suggests an improving economy (from a disastrously low base). The services PMI has rocketed up.
According to the NIESR economic think-tank, the UK economy is now growing at its fastest pace in three years. That sounds good, but what it means is real annual GDP growth of just 0.9% in the last three months to August, up from 0.7% a year to July. Wow! The UK economy is still 2.7% smaller than it was at its last peak in January 2008, in the slowest and weakest recovery from a recession in the last 100 years – even weaker than in the 1930s. It is now 66 months since the start of the Great Recession and the UK economy has still not got back to its peak (black line in graph below), while that was achieved in 48 months in the 1930s (blue line).
The fact that optimism about UK recovery is based on its services sector is no accident. What has been recovering is the property market. Residential property prices are rising at over 10% a year in London and around 3-5% a year elsewhere. It is the same phenomenon in the US, where home prices are rising at over 12% a year. The boom in these economies is concentrated in the unproductive sectors of finance, property and the stock market, not in investment and employment in manufacturing, industry and exports. Indeed, UK industrial output was completely flat in July And exports to non-EU countries fell by over 16% in July, the largest monthly decline since January 2009. As much of the UK’s ‘better’ real GDP growth in the last quarter came from exports this does not suggest that this current quarter will deliver much faster growth.
Much of the recent optimism about sustained recovery is the view that finally the Eurozone, with all its distressed and depressed peripheral economies like Spain, Portugal, Italy, Greece etc is starting to grow again. That view starts again with the pick-up in the Eurozone PMI.
The PMIs are recovering even in the peripheral Eurozone economies, although most are still contracting, if at a slower pace.
And it would seem that the Eurozone composite PMI is a reasonable guide to where the real GDP growth rate will go – both are picking up (see graph below).
But the actual data continue to show how weak Europe’s economies are. Most forecasts are that Eurozone GDP will still contract this year, before growing next year. Indeed, the European Central Bank (ECB) adjusted its predictions from June, revising up its 2013 GDP forecast from -0.6 per cent to -0.4 per cent, but it cut next year’s estimate from 1.1 per cent to 1.0 per cent. Wow!
And it was not encouraging to note that in Germany, the engine of Europe’s growth, manufacturing output in Q3 is very unlikely to come near Q2’s 1.3% rise and real GDP growth looks set to slow quite sharply after the 0.7% quarterly gain seen last quarter. July’s German trade data revealed a fall in exports.
I have never claimed in this blog that the world was in a permanent slump or that it had dropped back into a recession, when many others made such forecasts. But I also remain unconvinced that recent optimistic noises mean that world capitalism is now on a sustained upward trend in economic activity. In my view, it is still in a slow crawl, as it was in the years 1932-37 during the Great Depression or in the Long Depression of the 1880s. For me, the key indicators of sustained recovery in capitalism would be rising rates of profit, a sharp pick-up in business investment and substantial falls in unemployment. There are little signs of any of this.
I’ll return to the question of the role of investment and profits in another post shortly.
John Lott (http://johnrlott.blogspot.co.uk) provided the figure that said 96% of all jobs created in the last eight months in the US were part-time. Well, it appears that Lott got it wrong. Only 59.4 percent of the jobs added from January to August were part-time jobs (497,000 of 837,000 total jobs). And if you exclude March, then the percentage drops to 19%. And over the last year, the figure is just 14%.
Even so, that does suggest part-time jobs are becoming a larger proportion. Statistics!