The Pie Is Shrinking So Much The 99% Are Beginning To Starve

This report was originally published by Charles Hugh Smith at PeakProsperity

Social movements arise to solve problems of inequality, injustice, exploitation and oppression. In other words, they are solutions to society-wide problems plaguing the many but not the few (i.e. the elites at the top of the wealth-power pyramid).

The basic assumption of social movements is that Utopia is within reach, if only the sources of the problems can be identified and remedied.  Since inequality, injustice, exploitation and oppression arise from the asymmetry of power between the few (the financial and political elites) and the many, the solution is a reduction of the asymmetry; that is a tectonic realignment of the social structure that shifts some power—economic and/or political—from the few to the many.

In some instances, the power asymmetry is between ethnic or gender classes, or economic classes (for example, labor and the owners of capital).

Social movements are characterized by profound conflict because the beneficiaries of the power asymmetry resist the demands for a fairer share of the power and privileges, while those who’ve held the short end of the stick have tired of the asymmetry and refuse to back down.

Two dynamics assist a social, political and economic resolution that transfers power from those with too much power to those with too little power: 1) the engines of the economy have shifted productive capacity definitively in favor of those demanding their fair share of power, and 2) the elites recognize that their resistance to power-sharing invites a less predictable and thus far more dangerous open conflict with forces that have much less to lose and much more to gain.

In other words, ceding 40% of their wealth-power still conserves 60%, while stubborn resistance might trigger a revolution that takes 100% of their wealth-power.

History provides numerous examples of these dynamics.  Once the primary sources of wealth-generation shifted from elite feudal landowners to merchants and industrialists, the wealth (and thus the political power) of the landed elites declined. As the industrialists hired vast numbers of laborers drawn from small farms and workshops, this mass industrialized labor became the source of the wealth generation; after decades of conflict, this labor class gained a significant share of the wealth and political power.

The civil rights and women’s liberation movements realigned the political and economic power of minorities and females more in line with their productive output, reducing the asymmetries of ethnic and gender privileges.

In broad-brush, progressive social movements seek to broaden opportunities and level the playing field by reducing the asymmetric privileges of dominant classes defined by power and privilege.  The core mechanism of this transition is the recognition and granting of universal human rights: the right to vote, the right to equal opportunity, and rights to economic security, i.e. entitlements that are extended universally to all citizens for education, healthcare, old-age pensions and income security.

Again in broad-brush, these movements have largely been categorized as politically Left, though many institutions deemed conservative (for example, various churches) have often provided bedrock support for progressive movements.

Social movements which seek to limit the excesses of state power tend to be categorized as conservative or politically Right, as they seek to realign the asymmetry of power held by the state in favor of the individual, family and the traditional social order.

The Expanding Pie Fueled Expanding Entitlements

Writer Ugo Bardi recently drew another distinction between Left and Right social movements: “Traditionally, the Left has emphasized rights while the Right has emphasized duties.”

As rights manifested as economic entitlements rather than political (civil liberty) entitlements, rights accrue economic costs. As Bardi observes: “Having rights is nicer than having duties, but the problem is that human rights have a cost and that this cost was paid, so far, by fossil fuels. Now that fossil fuels are on their way out, who’s going to pay?”

I would argue that the cost was also paid by higher productivity enabled by the technological, financial and social innovations of the Third Industrial Revolution, roughly speaking the interconnected advances of the second half of the 20^th century.

These advances can be characterized as expanding the economic pie; that is, generating more energy, credit, technological tools, opportunities, security and capital (which includes financial, infrastructural, intellectual and social capital) for all to share in a socio-political-financial allocation broad enough to make everyone feel like they were making some forward progress.

This long-term, secular expansion of the pie naturally generated more demands for additional entitlements and rights, as the economy could clearly support the extra costs of allocating additional wealth and resources to the many.  From the point of view of the few (the elites), their own wealth continued expanding, so there was little resistance to expanding retirement, education and healthcare entitlements.

But in the 21^st century, the expansion of the pie stagnated, and for many, it reversed. Adjusted for real-world inflation many households have seen their net incomes and wealth decline in the past decade.

Despite the endless media rah-rah about “growth” and “recovery,” it is self-evident to anyone who bothers to look beneath the surface of this facile PR that the pie is now shrinking. This dynamic is increasing inequality rather than reducing it.

The Shrinking Pie And Stagnant Productivity

It is a truism of economics that widespread increases in productivity are required to generate equally widespread increases in income and capital, i.e. productive wealth. To the consternation of many, productivity has stagnated since 2010; no wonder household income for all but the upper crust has gone nowhere.

If we glance at a chart of productivity, we see a strong correlation with speculative investment bubbles (the dot-com and housing bubbles 1995-2005) and speculative spikes fueled by central bank monetary stimulus (2009-10).  Absent bubbles and monumental excesses of central bank stimulus, productivity quickly sinks to its secular trend line: downwards.

This next chart depicts the long-term trend line of productivity through all four industrial revolutions. Note the decline concurrent with the 4^th Industrial Revolution (mobile telephony, the Internet, AI, robotics, peer-to-peer networks, etc.) and the depletion of cheap-to-access-and-refine oil:

The unwelcome reality is that the economy is changing in fundamental ways that cannot be reversed with policy tweaks, protests or wishful thinking.

Consider the percentage of the gross domestic product (GDP) that goes to employee compensation (wages and salaried). Labor’s share of the GDP has been in a downtrend since 1970, which not coincidentally was the peak of secular productivity:

In this below chart of the distribution of wealth in the U.S., we find the same correlation to the downtrends in productivity and labor’s share of the economy.  The bottom 90% of households’ (the many) share of the wealth pie topped out in the early 1980s and has declined precipitously since, while the wealth of the top 0.1% (the few) has more than tripled since the late 1970s:

This next chart depicts the remarkable (and recent) spike income growth the few have recently enjoyed, at the expense of everyone else:

The increase in wealth and income inequality and the decline of productivity and labor’s share of GDP are the result of structural changes in the economy, changes with far-reaching consequences.

While it’s appealing to identify policies endorsed by self-serving insiders and elites as the source of these changes, that is far from the whole story. Much of this growing asymmetry stems from profound changes in the global economy that depreciate labor (as conventional labor is no longer scarce) and increase the gains of the top few in a “winner take most” allocation that benefits speculation, leverage and new ways of organizing labor and capital that reward the organizers far more than the users/participants.

In this new era of a steadily shrinking pie, the sources of inequality and related social problems have also shifted.  As a result, the social movements that were effective in the past are no longer effective today. Attempts to address rising inequality with the old tools are fueling frustration rather than actual solutions.

In Part 2 — Social Unrest: The Boiling-Over Point, we examine why our existing models for social change have slipped into ineffectual symbolic gestures that fuel fragmentation and frustration — and why that will lead to a dangerous boiling over of the 99% against the elites controlling the system.

When that happens (and it seems inevitable at our current trajectory), the rending of our social fabric will happen stunningly fast. The ensuing social disunity and disruption will be of the sort many alive today have never seen.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

China"s Raging Against Dying Of The Light (Or Why Peak Employment Is Imminent)

Authored by Chris Hamilton via Econimica blog,

China"s working age population is clearly defined as those aged 16 to 50 years old for females (55 for "white collar" females) and 16 to 60 years old for males.  China mandates retirement at these outer age limits.  Perhaps of some interest should be that this working age population peaked in 2011 and has been declining since.  This decline will continue indefinitely as China has a collapsing childbearing population (detailed HERE), net emigration (outflow), and a still decidedly negative birthrate.

There is no evidence to believe the working age declines will abate any decade soon.  As the chart below shows, China"s potential workforce will be shrinking indefinitely... and by 2030 China"s potential workforce will be over 100 million fewer than the 2011 peak (an 11% decline)...and only further down from there.

China has one of the youngest average retirement ages in the developed world.  On average, according to a recent study (HERE), Chinese leave the work force by age 55 compared to age 63 in the US (Norway has the latest average departure at age 67).  So, perhaps China will be raising the retirement age to curb the ballooning 60+yr/old population entering retirement (chart below)?  More on that later.

Comparing the working age population versus the 60+yr/old population (chart below).  A shrinking potential workforce since peaking in 2011 and a rapidly growing elderly population.

Below, that elderly growth versus the working age depopulation as a % of all adults (chart below)...think hockey stick.  After nearly six decades of maintaining a consistent 60+yr/old % of the adult population...the elderly explosion is just beginning.

If we take the now declining total potential working age population vs. China"s still rising total number of employed individuals (according to Statista)...the chart below shows that if China adds just a mere million employees a year (about a third of the annual average employment growth seen from "06 through "16)...that by 2030 China"s employment will exceed 100% of the potential workforce.  Wait...what?!?  Or perhaps working from the premise that people who don"t exist can"t be employed...it"s time to start considering China"s employed population is set to begin falling.

This idea that there are "millions upon millions of Chinese just waiting to be incorporated into the workforce"...not so much.  While a continuing shift from rural to urban is likely, China has already or will soon experience peak employment. Simply put, there will be fewer consumers of everything (homes, cars, appliances, etc.) every year than the year before. 

Whatever overcapacity exists now will be joined by massive increases in excess housing, excess production, excess shopping malls as this depopulation plays out over the coming years and decades.

Five big points here:

1) China ends one child policy, with little to no impact...

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  Although China implemented its one child policy in 1979 and officially phased it out in 2015, China"s birthrate was actually consistently higher than most of the other major economies in East Asia (Japan, S. Korea, Taiwan, Singapore...chart below) and only N. Korea"s fertility rate is currently higher.

  
  

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  None of these other East Asia nations ever implemented birth restrictions.  Instead, their populaces chose not to replace themselves responding to the availability of birth control, surging costs of child rearing, and inclusion of females into the workforce, etc.  Simply put, the one child policy was inevitable and has now organically gone global.  The phase out of this policy will have little to no impact of China"s fertility rates.

  
  

2) China to raise retirement age, but no time soon...

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  In early 2015, China suggested it would detail in 2017 (which I still have not seen) a gradual, multiyear process to raise the retirement age (China"s version of political suicide).  Suggestions focused on slowly, incrementally, raising female retirement ages to match males and likewise, pushing retirements out by a month or two per year.  However, none of this was even suggested to start within the next five years and like most things, almost surely be back-end loaded so any real impacts are overstated.  Regardless Communist or "Capitalist" politicians, the game is the same.  A little "razzle-dazzle" that ensures any negative policy impacts never occurs on your watch.

  
  

3) China to institute Universal Pension Plan...

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  In late 2015, China said "We will achieve a basic pension for all employees nationally".  Currently, about 800 million of China"s 1.3 billion are eligible for state pensions.  According to Sinosphere, pensions for non-state employees vary widely, as high as 3000 RMB ($480) month in Beijing to as little as 80 RMB for rural farmers.  Civil Servants pensions are generally higher than those of non-state employees.  The party statement said, China would be;

  
  
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    “Building a fairer and more sustainable social welfare system.

    
    
    
    

    Implementing plans for every person to take part in social insurance.

    
    
    
    
    
    

    Diverting capital from state-owned enterprises to social security funds.

    
    
    
    
    
    

    
    

    Offering all urban and rural residents insurance for serious illness.”

    
    

    
    
    
    
  
  

4) Chinese wages & average per capita disposable income rising but gains are hugely variable...

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  While Chinese factory wages in tier 1 urban areas are now inline with Portugal or S. Africa, this terrific rise has created it"s own problems.  The rise in wages has been met with inflationary spikes in rents, fuel, food, etc. etc.  Average disposable income has risen in the urban areas but flat at best across rural China.  However, the response of employers to the spectacular rising wages has been automation, a shift away from labor intensive production, and outsourcing to lower cost countries.  This is at odds with the generally low skill/low education rural population looking for opportunity in the urban areas.  The breadth and size of further gains in disposable income is likely to be limited.  Economically, a declining total number of workers making marginally more money will not provide the desired growth.

  
  

5) China cannot export its way out of this...

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  The annual change to the 0-64yr/old combined populations of the 35 OECD nations (US, Canada, Europe, Japan, S. Korea, Australia/NZ) plus China, Brazil, and Russia begin declining in 2018 (chart below).  The core populations of the nations responsible for consuming 80%+ of all Chinese exports have peaked and begin shrinking.  Fewer consumers every year than the year before, indefinitely.  As for the nations that are doing all the growing, India and Africa, they consume about 4% of all Chinese exports.  BTW, the chart below shows when each nation/region 0-64yr/old population began declining.

  
  

Simply put, China is offering to increase and broaden it"s pension system to a ballooning population of elderly but will have a decreasing potential number of employees from which to pay for that increase?!? 

How will China achieve this?  Well, as the chart below shows, as Chinese core population growth has been decelerating, Chinese debt growth has been accelerating. 

While China"s GDP and energy consumption have led the world, they have not responded in kind to China"s debt explosion and exponentially more will be necessary to continue to show "growth".  Over a third and perhaps half of all the debt has been mal-invested in a housing bubble for a population that is never coming. 

What comes next isn"t going to be good for China nor the rest of the world as China looks to flood a depopulating nation with new debt only creating more housing overcapacity... China will look to beat the Japanese at the debt game.

For instance, the Chinese public-pension system as of 2014, took in 2.33 trillion yuan in revenue and paid out almost 2 trillion...with 3 trillion in net funds.  The net outflows and drawdown of those net funds is imminent.

But not to worry, the Communist Party explained that..."We will look at some opportunities with higher yields but will contain risk".  Again, no details were offered.  However, one asset it is clear the Chinese will not be buying...US Treasury"s (chart below, showing the net purchases since the debt ceiling debate of July 2011 according to TIC).  Since that date, China has been a net seller of US Treasury debt despite running record US dollar surplus" (BLICS = Belgium, Luxembourg, Ireland, Cayman Island, Switzerland).

From 2000 "til July 2011, China recycled 50% of its dollar trade surplus into US Treasury debt accumulating over $1.3 trillion.  Since July 2011, China has net sold over $100 billion and as of October, held about $1.2 trillion (chart below).

But I"m pretty sure those dollars aren"t sitting fallow and are finding their way into some asset, probably one in particular that is selling on the cheap about right now.

 

Forget The Phony Pension Accounting, Here"s How Much Your State Pension Is Really Underfunded

The phony assumptions that go into calculating public pension underfundings in the United States are a frequent topic for us.  As our readers are aware, state pension administrators are given fairly wide leeway to simply pick a discount rate out of thin air.  Of course, since pensions are nothing but a massive stream of future liabilities that stretch out into perpetuity, every 100 bps increase can substantially, and artificially, lower the fund"s reported underfunded level. 

In fact, we estimated the impact of higher discount rates on underfunding levels in a post entitled "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion"...here was the result:

Fortunately, we"re not the only ones that see through the ridiculously phony assumptions that go into duping retirees and taxpayers as the team at American Legislative Exchange Council (ALEC) has just dropped a report which reviews the financial health of public pensions all over the country if you toss out their 7.5% discount rate and replace it with a risk free rate...

Faulty accounting and reporting methods obscure the magnitude of unfunded liabilities. Partly in response to the devastating impact of the Great Recession, the Governmental Accounting Standards Board (GASB) made two significant changes in 2012 (Statement No. 67, Financial Reporting for Pension Plans and Statement No. 68, Accounting and Financial Reporting for Pensions) to the methods used for measuring the financial health of pension plans. GASB intended these changes to increase transparency, consistency, and comparability of pension information. Public pensions are now required to report their assets and liabilities using a standardized actuarial cost method, to disclose investment returns, and to include unfunded pension liabilities on state balance sheets.

 

Unfortunately, states have found ways to work around these requirements and paint an unrealistically rosy picture of their pension funding status.

 

The Center for State Fiscal Reform at ALEC analyzes the annual official financial documents of more than 280 state-administered pension plans using more realistic investment return assumptions in order to gain a clearer picture of the pension problem. The unfunded liabilities of each pension plan are revalued using a discount rate equal to a risk-free rate of return, best represented by debt instruments issued by the United States government. This year"s study uses a risk-free rate of 2.142 percent, derived from an average of the 10- and 20-year U.S. Treasury bond yields over the course of 12 months spanning April 2016 to March 2017. Based on these revised investment return assumptions, we report on total unfunded pension liability, unfunded pension liabilities per capita, and the funding ratio of these plans.

...and as you might expect, the results are fairly bleak.  In terms on aggregate underfunding, ALEC figures our taxpayer-funded pension ponzis are roughly $6 trillion underfunded, or roughly 2-3x worse that the often-quoted $2-$3 trillion underfunding calculated by state pension administrators.  Meanwhile, using ALEC"s discount rates, the state of California is nearly $1 trillion underfunded by itself.

So, what is your personal share of these massive public liabilities?  Well, if you"re in one of the 10 bottom states it"s anywhere from $25,000 to $45,000.  Of course, that"s the liability for every man, woman and child so the typical American household (with 2.57 residents) in those states is on the hook for $67,500 - $115,650.

Finally, and perhaps most shocking of all, ALEC found that when using a risk-free discount rate only 1 state pension in the entire country was more than 50% funded.

ALEC"s full report can be reviewed here:

Is California Already In Recession?

By Political Calculations

When it comes to the health of his state"s economy, California Governor Jerry Brown has been walking on eggshells this year.

Twice each year, once in January and again in May, Gov. Jerry Brown warns Californians that the economic prosperity their state has enjoyed in recent years won"t last forever.

 

Brown attaches his admonishments to the budgets he proposes to the Legislature – the initial one in January and a revised version four months later.

 

Brown"s latest, issued last May, cited uncertainty about turmoil in the national government, urged legislators to "plan for and save for tougher budget times ahead," and added:

 

"By the time the budget is enacted in June, the economy will have finished its eighth year of expansion – only two years shorter than the longest recovery since World War II. A recession at some point is inevitable."

 

It"s certain that Brown will renew his warning next month. Implicitly, he may hope that the inevitable recession he envisions will occur once his final term as governor ends in January, 2019, because it would, his own financial advisers believe, have a devastating effect on the state budget.

Unfortunately for Governor Brown, the recession he fears may already have arrived in California.

The following chart showing the trailing twelve month averages of California"s civilian labor force and number of employed is one that we"ve adapted from a different project to show that data in the context of the state"s higher-than-federal minimum wage increases and periods of negative GDP growth for the national economy. It shows that in 2017, the size of the state"s labor force has peaked and begun to decline in 2017, while the number of employed shows very slow to stagnant growth during the year.

The data for this chart is taken from the summary tables for the state"s monthly reports on the California Demographic Labor Force, which are produced by California"s Employment Development Department. These are therefore the same numbers that Governor Brown sees, and they have been signaling throughout 2017 that the state"s economy is going through a period of stagnation after having generally grown since bottoming in mid-2011 following the Great Recession.

The labor force and employment numbers aren"t telling the full story however, which becomes evident when we factor in the state"s growing population. The following chart shows the labor force and employment to population ratios for the state"s civilian work force.

In this chart, we find that California"s employment to population ratio peaked at 59.2% in December 2016, having slowly declined to 59.0% through October 2017. Meanwhile, California"s labor force to population ratio last peaked at 62.6% in October 2016, which has since dropped to 62.1% a year later.

Going by these measures, it would appear that recession has arrived in California, which is partially borne out by state level GDP data from the U.S. Bureau of Economic Analysis:

Last year was a very good one for the state’s economy. The 3.3 percent gain in economic output in 2016 was more than double that of the nation as a whole and one of the highest of any state.

 

However, California stumbled during the first half of 2017. California’s increase was an anemic six tenths of one percent in the first quarter compared to the same period of 2016, and 2.1 percent in the second quarter, well below the national rate and ranking 35th in the nation.

 

The report revealed that almost every one of California’s major sectors fell behind national trends in the second quarter, with the most conspicuous laggard being manufacturing.

On a final note, the charts we"ve featured above were adapted from our project tracking the impact of California"s minimum wage hikes on its teen labor force, where we"ve been that labor force and employment data since July 2003 (which hopefully helps explain why the trailing 12 month labor force and employment to population ratio chart starts showing data beginning in June 2004). As bad as the charts above are for California"s labor force, the employment situation for California"s teens is much worse, having itself peaked in October 2016.

California"s teens are best thought of as being the proverbial canaries in the coal mine.

 

 

Moody"s Considers Municipal Ratings Changes That Could Push Illinois Into Junk Territory

A few weeks ago, we expressed some level of astonishment that the rating agencies, in their infinite wisdom, decided to bestow an investment grade rating upon a new $3 billion bond issuance by the City of Chicago.  Of course, this wouldn"t be such a big deal but for the fact that the state of Illinois is a financial disaster that will undoubtedly be forced into bankruptcy at some point in the future courtesy of a staggering ~$150 billion funding gap on its public pensions, a mountain of debt and $16.4 billion in accrued AP because they can"t even afford to pay their bills on a timely basis.  Here are just a couple of our recent posts on these topics:

• Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion


• Illinois Unpaid Vendor Backlog Hits A New Record At Over $16 Billion


• The State Of Illinois Is "Past The Point Of No Return"

Alas, as Capitol Fax notes this morning, it seems as though Moody"s may finally be waking up to the farce that is their own municipal ratings system and is currently in the process of seeking comments from market participants on proposed changes for states’ general obligation credit ratings, which would include an increased emphasis on debt and pension obligations.  Of course, with their GO rating just one notch above junk, all of those long-only bond funds that have scooped up billions in "juicy" 4% Illinois paper over the past couple of months should probably take notice.

Under the proposed changes, debt and pension obligations will have a 25% weight on state credit ratings, up from 20% currently. The individual state’s economy, another factor in Moody’s ratings, will also have a 25% weight, up from 20%. Governance will fall to 20% from 30% and finances will be maintained at 30%.

 

The debt and pension factor “is critical because debt and pension obligations are the primary long-term liabilities that states have,” Moody’s said in an announcement on the proposed changes Tuesday. “As these liabilities grow, states face rising expenses to pay debt and pension benefits. High fixed debt service and pension costs can crowd out other budgetary priorities and force states to raise taxes in order to meet them. Debt and pensions can curtail a state’s budgetary flexibility and heighten the risk that it will seek to deleverage through a debt restructuring.”

Of course, the proposed changes come just after Fitch put out their 2017 State Pension Update which showed that Illinois’ pension crisis is the worst in the nation with an underfunding of more than $151 billion...or $60 billion more than second worst state: New Jersey.

“Six states have long-term liability burdens that Fitch considers elevated [in excess of 20 percent of personal income],” the report said, “with Illinois carrying the highest liability burden at 28.5 percent of personal income.”

 

Fitch Senior Director Doug Offerman said taxpayers should care because the burden takes up more than 28 percent of all personal income in Illinois, “which is essentially a proxy for the wealth level, the resource base of a given government.”

 

“For the last several years the [pension] increases did grow faster, and I would say do crowd out other spending that might have otherwise taken up organic revenue growth,” [Fitch Ratings Senior Director Karen Krop] said.

Meanwhile, State Senator Dan McConchie (R) noted, as have we on multiple occasions, that people are already fleeing Illinois in droves because of its financial crisis and resulting tax burdens.  “Whether it’s through their property taxes or because of the recent income tax increase, they just can’t afford to [stay here],” McConchie said. “This day of reckoning is fast approaching us. I don’t think we want to wait until the absolute last minute to try and do everything we can to really right the ship.”

Unfortunately, Mr. McConchie, we"re afraid your proverbial ship is taking on so much water at this point that it hasn"t a hope of surviving the crushing weight of your state"s mounting debts...perhaps it"s better at this point to simply seek a life raft and follow your constituents to Texas.

Almost A Third Of Americans Are Working Beyond Age 65

There is a huge disparity in employment rates among over 65s across different countries...

You will find more statistics at Statista

As Statista"s Niall McCarthy notes, a recent OECD report found that the highest rates of people working beyond 65 are in Asia with Indonesia particularly notable as having a 50.6 percent employment among those in the 65-69 age group. That figure is high elsewhere in Asia, standing at 45 percent in South Korea and 42.8 percent in Japan.

In contrast to Europe where there were widespread protests when the retirement age was raised even slightly, much of Asia has actually been supportive of increases in the mandatory retirement age. Reasons for support include everything from a desire to maintaing a fit and active life to more obvious concerns about finances.

New Zealand has no compulsory retirement age and it is another country with a high employment rate among older people with 42.6 percent of those aged 65 to 69 still working. The rate is far less in Australia at 25.9 percent while it"s 31 percent in the United States.

In Europe where all those protests happened, the rate is lower still. In the United Kingdom, the employment rate for 65-69 year olds stands at 21 percent while in France and Spain, it is only 6.3 and 5.3 percent respectively.

Near Record 5.6 Million Americans Were Hired In October, Most In Over 16 Years

After a burst of record high job openings which started in June and eased modestly in August, today"s October JOLTS report  - Janet Yellen"s favorite labor market indicator - showed a sharp drop in job openings across most categories now that hurricane distortions have cleared out of the system, with the total number dropping from 6.177MM to 5.996MM, well below the 6.135MM estimate, the biggest monthly drop and the lowest job openings number since May, resulting in an October job opening rate of 3.9% vs 4% in Sept.

After nearly two years of being rangebound between 5.5 and 6 million, the latest drop in job openings despite the alleged improvement in the economy is another inidication that an increasingly greater number of jobs may simply remain unfilled in a labor market where skill shortages and labor imbalances are becoming structural.

The number of job openings was down for total private and was little changed for government. Job openings increased in accommodation and food services (+94,000), construction  (+48,000), and real estate and rental and leasing (+40,000). Job openings decreased in wholesale trade (-90,000), finance and insurance (-47,000), information (-32,000), and nondurable goods manufacturing (-26,000). The number of job openings was little changed in all four regions. Now if only employers could find potential employees that can pass their drug test...

One notable change in this report was that despite the sharp drop in job openings, the number of hires in October soared by 232K to 5.552MM in October, the highest since March 2001, and further reducing the hiring rate from 3.8% to 3.6%. At the industry level, the number of hires increased in other services (+55,000) and health care and social assistance (+45,000). Hires decreased for state and local government, excluding education (-32,000). The number of hires increased in the Northeast region.

On an annual basis, the pace of hiring spiked in October, rising from 2.7% Y/Y in Sept., to 6.8% in October, the highest since February 2016.

The other closely watched category, the level of quits - which indicates workers" confidence they can leverage their existing skills and find a better paying job - was unchanged in October, and was identical to the 3.18MM quits in September, suggesting little change to worker confidence about demand for their job skills. The number of quits was little changed for total private, for government, and in all industries. In the regions, the number of quits increased in the South and decreased in the Midwest.

And with a total 5.2 million separations (a 3.5% rate), this means that there were 1.6 million layoffs and discharges in October, little changed from September. The layoffs and discharges rate was 1.1 percent in Oct. The layoffs and discharges level increased in finance and insurance (+37,000) and in mining and logging (+7,000). Layoffs and discharges decreased in construction (-69,000) and in state and local government, excluding education (-15,000). The number of layoffs and discharges decreased in the Northeast region.

Putting all the data in context:

• Job openings have increased since a low in July 2009. They returned to the prerecession level in March 2014 and surpassed the prerecession peak in August 2014. There were 6.0 million open jobs on the last business day of October 2017.


• Hires have increased since a low in June 2009 and have surpassed prerecession levels. In October 2017, there were 5.6 million hires.


• Quits have increased since a low in September 2009 and have surpassed prerecession levels. In October 2017, there were 3.2 million quits.


• For most of JOLTS history, the number of hires (measured throughout the month) has exceeded the number of job openings (measured only on the last business day of the month). Since January 2015, however, this relationship has reversed with job openings outnumbering hires in most months.


• At the end of the most recent recession in June 2009, there were 1.2 million more hires throughout the month than there were job openings on the last business day of the month. In October 2017, there were 444,000 fewer hires than job openings.

Finally, and perhaps most notably, the Beveridge Curve (job openings rate vs unemployment rate), appears to be gradually normalizing after a nearly decade-long "drift" from its conventional pattern. From the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. In October 2017, the unemployment rate was 4.1 percent and the job openings rate was 3.9 percent.

David Stockman Lashes Out At Mainstream Media"s "Peak Fantasy Time"

Authored by David Stockman via Contra Corner blog,

If you want to know why both Wall Street and Washington are so delusional about America"s baleful economic predicament, just consider this morsel from yesterday"s Wall Street Journal on the purportedly awesome November jobs report.

Wages rose just 2.5% from a year earlier in November - near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November.... November marked the 86th straight month employers added to payrolls.

Whoopee!

Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the "jobs" counted by the BLS establishment survey. In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level.

The reason isn"t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually.

In other words, the ballyhooed headline averages are essentially meaningless noise because the BLS counts all jobs equal----that is, a 10-hour per week gig at the minimum wage at McDonald"s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

When the line is trending inexorably from the upper left to the lower right, of course, it means there are more of the former and fewer of the latter. Six more minutes of continuing worse----is still bad.

 

As a matter of fact, the November report showed 20.199 million goods-producing jobs in manufacturing, construction and energy/mining, which did represent about a 2% improvement from prior year.

The real story, however is not about the short-term monthly or annual deltas being generating by an economy barely crawling forward. Rather, at 102 months, the current business cycle is exceedingly long in the tooth by historic standards (the longest expansion was just 118 months under the far more propitious circumstances of the 1990s).

In fact, what has been the weakest expansion in history by far may now be finally running out of gas.

During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply---and it is ultimately Uncle Sam"s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL---meaning they are not likely to be recovered before the next recession hits.

Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed,  we are still not even close to the  24.6 million figure which was posted  at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the "Bread and Circuses Economy" keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total.

Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers or 2.4X the four decade ago level.

Yes, there is nothing wrong with these jobs or the workers who hold them, but the fact that they constitute a rapidly increasing share of the mix is powerful proof that the job market is not nearly as awesome as it is cracked up to be; and that the monthly BLS report is surely no measure at all of a rising standard of living in Flyover America.

The larger point is that the monthly jobs report is really neither a report on true labor market conditions or a proxy for genuine economic growth. The fact is, without sustained growth of  full-time, full-pay "breadwinner" jobs there is no real economic recovery or progress.

And we literally mean, no progress. With an update for November"s results, the chart below would show 72.8 million "breadwinner jobs" in goods production, the white collar professions, business management and support, transportation and distribution, FIRE (finance insurance and real estate) and full-time government jobs outside of schools.

As it happens, that is virtually the same number posted by the BLS back in January 2001 when Bill Clinton was packing his bags to vacate the Oval office. In short, three presidents later---all of whom have claimed undying devotion to good jobs and rising living standards---and there is hardly a single new breadwinner job.

The above chart does not bring the concept of awesome to mind. In fact, it reminds of the same kind of stagnation that is evident in all the key metrics for real economic progress. For instance, an economy flat-out can not grow without steady gains in industrial production, which includes energy extraction and all facets of goods manufacturing from automobiles to furniture clothes, shoes and canned soup.

But like in the case of "breadwinner jobs", this so-called recovery has generated none of it. The index of industrial production stands at exactly the level of the pre-crisis peak a full decade ago.

There is a whole raft of these statistics,  but the following graph leaves little to the imagination.

Notwithstanding the Fed"s whacko claim that it hasn"t generated enough inflation in recent years, the truth is that even by the BLS" faulty measuring stick every single dollar of median household income gain has been eaten up by CPI inflation. Accordingly, there has been zero gain in real median household income for the entirety of this century!

What does our latest Oval Office occupant plan to do about this? Why nothing less than borrow $1.8 trillion from future taxpayers in order to enable corporations and other business to crank-out even bigger financial engineering distributions to shareholders in the form of dividends, stock buybacks and M&A deals.

This isn"t even "disruption" as per the Donald"s real job. It"s just dumb and fiscally irresponsible beyond measure - a message we have once again taken to the mainstream media in recent days.