The Bureau of Labor Services released a strong employment number, showing an increase of 274,000 jobs. At first, the market rallied about .5%. However, the rally has stalled and as of this writing the averages are floating around unchanged.
This report should have started a really strong rally. So, the market's reaction got me thinking "was there something to this report I missed." The answer is yes.
Let's break down these numbers. Total employment growth increased 274,000.
Great number. In addition, it came in above expectations.
That makes this an even better number. This should send the markets strongly higher.
But the economy only created 45,000 goods producing jobs. And of those jobs, there was a 47,000 increase in construction employment and a net decrease of 6000 in manufacturing. So, the US economy is still not creating new products. Instead, we are building houses. I like houses as much as the next guy, but for the economy to grow, it needs to find the "next big thing" that will spark a new industry. Some of the loss in manufacturing is the result of productivity increases. However, there is also a loss due to international wage arbitrage. This is a fancy way of saying "labor costs are cheaper over there than here."
This is where the Republican's supply-side rhetoric trips up. They love their tax cuts for the rich, arguing that the rich will use their new cash for new products and production. That is not happening. Yes, the rich have the capital needed for private industry to expand. But they are not using it to create new products. This is where the supply side argument falls short.
In addition, the report shows a net increase of 24,000 in retail and 58,000 in hospitality and leisure, for a total of 82,000 or 30% of the jobs created. So, we're entertaining people and selling someone else's products instead of making our own.
"But, at least these people are working." That's what the right will say. Respond with "for what wages." According to the Bureau of Labor Statistics, the current average seasonally adjusted wage for a manufacturing job is $17.50.hr. Compare this with a retail wage of $9.10/hr and a hospitality rate of $12.34/hr. While the average construction wage is very good ($19.38/hr), the record levels of US debt leads to the question `how long can that last?" With all the talk of a real estate bubble circulating in the financial press, the question becomes more relevant. So, 47% of the jobs created are either lower paying or subject to a possible pop in a bubble.
After looking at the numbers in detail, there appears to be more concern about the economy. Given the underlying facts of the number, the concern appears to be warranted.
