Declining Payroll Growth Rate the Final Point Signaling the Next Recession
If you were to ask small business owners about their confidence in current conditions, it would yield a surprising answer. Two of the key indicators of confidence, the demand for credit and a rise in hiring levels, have not grown. In fact, the pace of both is worrisome enough to suggest another U.S. economic recession is approaching.
Some economists are suggesting that while monthly payroll increases may have fueled optimism, relative payroll numbers tell a different story. Simply put, more people found jobs in 2016 than in 2017 in the same year-to-date period. In 2016, payroll gains reached 1.548 million. In 2017, the number is 1.405 million. That’s about 143,000 fewer payroll additions. The upcoming recession could start as early as 2018. (Source: “These charts show recession odds may be higher than you think,” CNBC, September 15, 2017.)
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According to experts who have crunched the statistics, every time the U.S. has witnessed a similar scenario, a recession has followed within a 12-month period since at least 1947.
The job growth statistics have shown conflicting numbers. From some perspectives, job openings suggest that demand for employees has never been greater. (Source: “U.S. job openings at record high; qualified workers scarce,” Reuters, September 12, 2017.)
The Next Recession Will Be Worse
The next recession will be worse, perhaps because it comes after almost a decade of stagnating wages. Consumer spending did increase and Americans have accumulated credit card debt—even if they haven’t defaulted en masse yet. This raises the specter of a credit bubble again. It may not come from subprime mortgages as in 2007-2008, but such financial products as alternative car loans are reaching a dangerous level.
They are leading us down the same path as the 2008 financial crisis. (Source: “How Subprime Car Loans Are Ruining Lives And Repeating The Mistakes Of The Housing Crisis,” Jalopnik, July 21, 2017.)
In another smaller, but no less indicative development pointing to a recession, Toys ‘R’ Us, one of the symbols of the consumer spending surge of the last 25 years, has collapsed. The famous toy retailer has suffered from the same malaise that has affected so many other retail businesses: online competition. (Source: “Toys ‘R’ Us seeks bankruptcy protection, crushed by debt and online rivals,” The Financial Post, September 19, 2017.)
Online competitors don’t necessarily win because they’re better. Often, consumers survey the retail store to look at and feel the merchandise. But they then look for and purchase those same items online. They do this for clothes, shoes, car parts, and toys too, it seems.
The reason is simple; with tighter payroll numbers, most people want to save as much money as possible. Online shops can avoid paying for the storefront on the high street and pass on some of those savings to consumers. No wonder Amazon.com, Inc. (NASDAQ:AMZN) stock has been reaching new highs.
The payroll growth data is suggesting that even if the U.S. economic outlook for 2017 remains healthy—if only by a hair—a recession will be difficult to avoid in 2018. The U.S. economic growth rate was favorable for the last quarter. It seemed to match Trump’s best estimates of around three percent. But Hurricanes Harvey in Houston and Irma in Florida have caused billions of dollars in damages.
Reconstruction could spawn consumer spending in some areas on building materials and cars. But, it will be a temporary spurt, which will also demand considerable spending from the government. The hurricanes, in other words, have blown away not just buildings and roads; they have blown away any chance that Trump’s generous tax plan might pass. The tax plan, if you haven’t paid attention, is the only factor that can explain why Wall Street continues to set new records every day. Sooner rather than later, a major crash will occur.
Sooner or later, there will be a realization that the government cannot afford to lower taxes. That’s also because world events are drawing the United States in another period of high military spending. The payroll numbers, wage growth, and hiring patterns are going to compound the already high risk levels emanating from the wider macroeconomic risk.
The Payroll Numbers Are Signaling Recession
So, there is a situation whereby credit card debt slips have risen to levels comparable to those of the financial crisis that erupted in 2008. Then, as CNBC suggested, industrial and commercial loans are falling. That’s a typical sign of recession and of economic collapse. Yet, most media stories—and the corresponding reactions from investors—insist on presenting the fairy tale of rising job numbers.
Let us consider what jobs are rising and why consumer spending will remain subject to what we can call consumer depression. I believe the reason is not hard to find. There are two basic reasons. One is that there is a hidden inflation. Economists at the Federal Reserve are desperately looking for statistics of inflation; they want to measure it. They can’t because inflation doesn’t take into account how much of people’s salaries have to go to pay for superfluous services like insurance, for example.
In the age when Democrats and Republicans have found a rare moment of agreement, signing a $696.0-billion defense bill, most people are left to pay for their healthcare all by themselves. Healthcare is one of the hidden drivers of the inflation the statisticians can’t track. At present, in the U.S.’s case, there is a proper noun to describe it: Obamacare.
Then there are the rising costs of education—and more education in order to qualify for jobs with specific requirements. Meanwhile, salaries aren’t rising. So, is it any wonder that a recession is looming? Oh, and as for that famous job growth, the jobs that are being created continue to be of the low-wage kind, including waiters and service providers of some kind. They won’t be buying a yacht or employing service staff anytime soon.
Alternatively, because of low wages, the unemployed are simply happier collecting welfare or unemployment benefits when they can. They don’t look for “official” work and leave the economy rather than work for low wages. Meanwhile, for a miniscule few who have continued to take advantage of finance, who produce nothing and don’t invest in economic realities that produce jobs, the billions continue to fill their coffers.
