The decade-long recovery from the Great Recession reveals some cracks in the glass.
The monthly change in non-farm payrolls is closely followed by financial markets and is often the catalyst for outsized market moves. We say that because the payroll series is volatile, with a 1960-2020 average change of 184,000 jobs per month (when the economy is not in recession) and with a standard deviation of 142,000.
The January payrolls addition of 225,000 new jobs, though still a good number, is only 0.29 standard deviations above average levels and insignificantly different than normal (average) changes, according to statistical analysis. That means that a 225,000 gain is just as likely to occur as a 143,000 gain.
A glass half full
Analysis of the payroll data outside of the traditional focus on the latest monthly number shows some cracks in the decade-long recovery from the 2007-09 Great Recession, pointing to long-term issues that will likely need to be addressed by monetary and fiscal policymakers.
First, on the positive side, the first chart below showing payroll growth during the 2010-20 recovery does not follow the dramatic pattern of up sharply in the period immediately after a recession, and then dramatically down in the months prior to a recession. Rather, payroll gains gradually reached their cyclical peak in 2015, and have drifted lower since.
The second chart below shows that the trade war took its toll on the U.S. economy from late 2018 to the last months of 2019, with a brief reprieve in recent months. But as the third chart illustrates, those payroll gains have occurred in the services sector and not in the goods-producing sector. That implies a consumer base that has a job (or two), but not the income gains of previous generations.
The benefits of infrastructure planning
In terms of policy, the draining of manufacturing employment suggests scope for an accommodative monetary policy (which is already present) and a fiscal infrastructure plan that would provide higher-paying construction employment for working families. For example, during the 1930s, government projects built the infrastructure that allowed for the post-War economic boom and middle class advancement.
Three years ago we took a look at the U.S. infrastructure deficit in our monthly The Real Economy publication. At that time, the American Society of Civil Engineers estimated that the U.S. economy needed about $4.5 trillion dollars in outlays to support modernization of the domestic infrastructure. Meanwhile, the combined state of roads, transit, bridges, waterways, ports and broadband acts as an approximately $100 billion per year net drag on growth, costing every American household about $3,400 annually in lost disposable income.
Whatever differences linger from a contentious 2016 election season, and as we quickly approach November 2020 presidential election, there is one truth that cannot be denied: It is far past time to repair how we travel, communicate, conduct commerce, train the workforce of the future and provide energy and education to our communities. As the longest economic expansion in U.S. history continues, it would be a terrible policy failure to continue to ignore infrastructure investment.
New schools and hospitals, expanded broad-band access to forgotten rural communities, a modernization of the national energy grid, and an investment in education for the future of our workforce would go a long way toward providing jobs right now, while investing in the future of the economy.
