Today's Jobs Report Sets a New Record for Consecutive Months of Job Creation

Last month the economy gained 248,000 jobs but today's announcement is for 317,000 new jobs since July and August numbers were revised upwards by 69,000.

The total for the year is already over 2 million with one quarter to go. Better yet, the fourth quarter has been one of the strongest during the recovery.

We're on track for the best year since 1999. 

This is now the longest uninterrupted streak of positive monthly jobs reports. For exactly four years BLS has reported net gains in job creation, matching the streak in the late 1980s. And this streak is almost certain to go longer. This in the midst of the Tea Party's near-government shut-down last year, Ebola panic this year, repeated Eurozone crises, Arab Spring, Russia's invasion of the Ukraine, and the fact that during no other recovery has the federal government been shedding jobs. There have been, in the parlance of the field, some strong headwinds. And during this volatile period, the American economy has created 9.1 million jobs, more than Japan, Western Europe, Canada, and Australia combined.

At 5.9%, the unemployment rate is below 6% for the first time since before the Lehman Brothers bankruptcy in September of 2008 that - for many - marks the beginning of the Great Recession. (In the 14 months after Lehman Brothers, the economy lost 7.2 million jobs, a staggering number.) Better yet, the rate at which the unemployment rate is dropping is accelerating. Accelerating at the point at which the longest previous recovery on record stalled. 

Perhaps the best news about this has yet to play out. For more than a decade, the jobs market has been weak. Imagine a rope that pulls up wages. If that rope is slack - if the unemployment rate is 6% or higher rather than 5% or lower, say - wages stagnate. We are entering a period in which the job market is finally strong enough to not just create jobs but to bid up wages. 

It might just get better. 

In Just 2 Years the Economy Lost 8.6 Million Jobs, Erasing 8.5 Years of Job Creation. It Took Only 5.5 Yrs To Recover

It was only six years ago that the Great Recession began in the Fall of 2008. Lest you yawn at this Friday's announcement of tying the record for consecutive months of job growth (9 million jobs created over 48 months) and last week's announcement of 2Q GDP growth of 4.6% (annualized rate), it's worth reviewing how awful things were such a short time ago. It could have been worse than the Great Depression. It certainly started out worse.

"Between March and September 2008, eight major US financial institutions failed - Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Washington Mutual, and Wachovia - six of them in September alone. And the damage was not limited to the US. More than 20 European banks, across 10 countries, were rescued from July 2007 through February 2009."

The failures and near-failures weren't limited to just the banks in question. This rippled out. Credit dried up.

"The seasonally adjusted value of commercial paper outstanding in the U.S was $2,150bn at the end of June 2007. A year later, this had shrunk to $1,741bn. A year after that, in June 2009, it was down to $1,229bn. It had still not recovered in June 2013, when the outstanding amount was just $998bn. Asset-backed commercial paper, which is used to finance mortgages, shrank even more dramatically, from $1,200bn in June 2007, to $523bn  two years later and a mere $276bn in June 2013."

The result was a contraction in international trade, purchases, and hiring. Without financing, people don't buy cars and houses, start businesses, or hire employees. Financing is the support structure for the modern economy. Without it, GDP collapses.

"The volume of world trade fell by close to 20 per cent in the twelve months from April 2008, against around 10 per cent over the twelve months from June 1929. World equity markets fell by around 50 per cent over twelve months this time, against around 20 per cent in 1929-30. ...
Between the third quarter of 2008 and the first quarter of 2009, the annualized rate of decline in GDP in the six largest high-income countries ranged from 6.4 per cent in France, 7 per cent in the UK and 7.1 per cent in the U.S. to 10.2 per cent in Italy, 11.7 per cent in Germany, and 13.8 per cent in Japan."

In just two years - from January 2008 to December 2009 - the US economy shed 8.6 million jobs. To put that in context, in the seven prior years of George W.'s presidency the economy had created only 5.6 million jobs. In just two years, we lost 3 million more jobs than we had created in seven. It was as if every job created from October of 1999 forward had disappeared, 8.5 years of job creation erased. Fortunately, it took only 5.5 years - not 8.5 years - to recover those jobs.

The fact that in the wake of this financial crisis - a financial crisis worse than what triggered the Great Depression - we have tied the record for consecutive months of job creation is truly remarkable and worth celebrating.


Quotes taken from Martin Wolf's The Shifts and the Shocks: What We've Learned-and Have Still to Learn-from the Financial Crisis

Why the Rise in New Home Sales Promises Years More of Recovery

New home sales were up 33% between August 2013 and 2014. That's good news for a host of reasons, not the least of which is that the housing market has been the slowest sector to recover after the Great Recession.

Better yet, there is still plenty of room to improve, as you can see in this graph from the St. Louis Fed.

One thing of note is that even at an annual rate of 504,000, August home sales are not that high. The average since 1963 is closer to 600,000 and since 1963 the US population is not just 75% higher but the size of the average household has dropped.

The good news is that home sales are recovering. The better news is that while the housing market is recovering, it is still far-off from over-heated. Next Friday, this recovery measured by uninterrupted months of job creation will have reached the record for post-1939 data. And if the pattern of housing sales suggests that this recovery still has a couple more years left in it.

The Lazy Days of Summer

July job numbers were up 209,000, less than the 230,000 folks were estimating. There are a few things of interest about this number.

1. Since 1939, there has been only one uninterrupted streak of monthly job creation that has lasted longer. It's now been 46 months in a row of net positive job creation. In two months, the current streak will be tied for longest ever uninterrupted streak.

2. And speaking of streaks, the economy has now created more than 200,000 jobs for six months in a row. That makes it the longest streak of 200k+ since 1997.

3. The average monthly job creation so far this year is 230,000. Assuming that average holds, it would mean 2.7 million jobs for 2014, which would make this the best year for job creation since 1999. We may finally be leaving the naughts (2000 to 2009) behind.

4. There are some folks who feel this 209,000, a drop from the last three months, hints at a cooling down of the economy. It might, instead, simply suggest reflect a deeper pattern that has to do with the lazy days of summer. During the last five years, July and August have been the slowest months for job creation. (And April and May are the busiest months.) July is down a tad from the previous months but it is down less than typical. (The average fluctuation throughout the last five years is shown below.)

Simply put, there is nothing to suggest that this recovery is faltering. Not yet.

This Jobs Recovery Has Quietly Crept Up on the Record for Longest Expansion

Tomorrow's job report will probably extend the streak of months with uninterrupted job growth to 44, placing it 3rd among recorded streaks in these United States. (The data only goes back to 1939.) By the time July's numbers come in, this recovery should tie for second; by the time September's numbers come in, this recovery could hit its 4th anniversary and be tied for first.

The rate of job creation has been okay - only slighter better than the recovery in the mid-aughts. Everyone has been complaining about it the whole time. And of course it comes on the heels of the worst recession since we began collecting monthly data, making its gradual improvements seem paltry. But it is nonetheless quietly edging towards a new record. This recovery is not just long: it shows little sign of ending soon.

The global economy is steadily recovering from the Great Recession. Emerging markets from Africa to India show great promise. Europe's debt default talk has quieted. Abe's policies are waking Japan's economy for the first time in decades. All that will help the American economy.

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Unemployment here in the US is still moderately high and inflation relatively low: this recovery has yet to show the signs of overheating that we saw towards the end of the three other long recoveries. The unemployment rate at the end of the runs in the 80s, 90s, and aughts was 5.2%, 4.0%, and 4.6%. At the rate our unemployment rate is dropping, it will take us another year or two to reach those levels, suggesting that we won't run out of slack anytime soon. In fact, our unemployment rate of 6.3% may well rise to 6.4% tomorrow. 

Of course this run of uninterrupted job gains could end next month. One thing that every one of the three other recoveries share in common? They ended in summer, in June or July. Perhaps summer is the time when the beach looks more alluring than a cubicle. But I think that's a beach blanket that won't be spread out until next summer, when this recovery is closer to 5 years old.

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Yes, it's a fool's errand to forecast the movement of something as unwieldy as an economy a year into the future. But what's the use of blogging if you can't do fool's work?

Today's April Jobs Report Adds to the Promise of 2014

This is the jobs report I prematurely forecast last month for March. It took a month longer to happen than I thought, but this ~300,000 jobs report is good news.

288,000 jobs created in April plus the numbers for February and March revised upwards by 36,000 means that a total of 324,000 new jobs were announced this month. We may actually have a year in which monthly job creation numbers average more than 200,000; if so, it will be only the second time since 1999.

The unemployment rate, after being stuck at the same rate for four months, sharply fell. The unemployment rate for April in the last five years leaves little doubt that we're experiencing a real recovery. And it actually seems to be accelerating, 4+ years in.

Two Reasons Why This Recovery Feels So Anemic (And Why Even Normal Could Create a Boom)

The economy is recovering but we've yet to feel a wave of optimism sweep across the country. The two biggest reasons are that the 2000s gave us a huge hole to dig out from and we're creating jobs at about half the rate we should be given our population.

At first blush, the first few years of this decade have been pretty good in terms of job creation. Assuming that the rate of job creation continues at the average of the first 4.25 years (2010 through March of this year), a graph showing job creation by decade looks like this.

At the rate it is going, the economy would create 19.4 million jobs - exactly what it created in the 1970s and not that much better than the 1980s or worse than the 1990s. That seems really good but I'll explain in bit why it isn't.

REASON ONE: MAKING UP FOR AN AWFUL DECADE
In this graph we see the first reason why our recovery seems so anemic. During the 2000s the economy actually destroyed 1.1 million jobs. Such a decade is unprecedented in the post WWII period. A disaster. And think about what it means for a running total. During the 1990s it wasn't just that the economy created nearly 22 million jobs: added to the 1980s, it created a total of 40 million jobs. For an equivalent job market coming off a decade in which no jobs were created, the economy would have to create 40 million jobs during the 2010s, an average of 4 million per year. During the entire period shown in this graph (1940 to 2014), the economy created 4 million jobs only one year (1978).

REASON TWO: A BIGGER POPULATION NEEDS MORE JOBS
It gets worse. These numbers of jobs created make no allowance for whether the population is 132 million (as it was in 1940) or 309 million (as it was in 2010). Obviously, though, a larger population needs more jobs. This graph shows the number of jobs created as a percentage of the population.

As a raw number, a rate of job creation that would give us 19 million jobs by decade's end is not bad in comparison to the previous seven decades. But creating new jobs for only 6% of the population is bad. The average for the decades up to 2000 was 9%. To create the equivalent number of jobs would mean creating about 30 million jobs in this decade instead of 20 million.

What would it take to party like it's 1999? To feel as flush with jobs, cash, and wealth? At least a few years of job creation at the rate of 3 to 4 million per year. If we come even close to this, it'll create a boom as impressive as any since WWII even though it will - in some sense - simply get us back to normal.

Gallup Job Creation Index Back to Pre-Recession Levels

Gallup tracks job creation in the US, posting a three-day running average. Its posted values go back six years. Here is a graph that plots only the value on March 16, from 2008 to 2014.

The index is back to where it was just before the recession. It's worth remembering that six years ago, unemployment was 5.1 percent.

This is good news for the obvious reason that a job creation index this high will continue to bring down unemployment. Almost as importantly, as unemployment continues to lower wages will start going up. That is terribly overdue.

I think that this graph showing how household income has stagnated is probably the single most important graph from the president's recent economic report. It explains a host of political and economic issues, showing that household income last year was about where it was in the late 90s.

As household income has stagnated, it has simultaneously put pressure on two political fronts. Liberals, aware of how hard this economy has been on people, have pushed for a better safety net. Conservatives, aware of how hard this economy has been on government debt load, have pushed for less spending. Because of this reality of diminished household income, both sides are hugely disappointed: debt has soared even as government programs have been scaled back. 

Back when household income rose, it was possible to simultaneously increase government revenues and take-home pay; that makes for easy politics. When household income drops, so does take-home pay and money for government programs; that makes for hard politics.

If the rate of job creation rises, it won't just make things easier in households across the country. It will make politics a little easier in capitol buildings in DC and every state.