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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Job Growth Downturn Lines Up With GDP Growth Downturn


While economists scratch their heads about the apparent disconnect between GDP growth and job growth, the cyclical reality is that both peaked in early 2015 and remain in cyclical downtrends. Indeed, year-over-year (yoy) GDP growth is now at a two-year low, while yoy payroll job growth is hovering just above a two-year low.
 
Meanwhile, the sustained decline in the official jobless rate – now near the Fed’s estimate of “full employment” – is a misleading indicator of current labor market health. Indeed, the employment/population (E/P) ratio, after plunging in the wake of the Great Recession, has reversed only a small portion of its decline from its pre-recession highs. Furthermore – as a breakdown of the E/P ratio by education level shows – even this modest improvement is illusory.



Since 2011, when the E/P ratio for those with less than a high school diploma bottomed, that metric has regained two-thirds of its recessionary losses (orange line in chart). But the E/P ratio for high school or college graduates – i.e., eight out of nine American adults – has not recovered any of its recessionary losses, and has barely budged in four years (purple line).

This data underscores how the jobs recovery has been spearheaded by cheap labor, with job gains going disproportionately to the least educated — and lowest-paid — workers, many of whom have to work multiple jobs to make ends meets.

Since the turn of the century, the reality on Main Street has been stagnant incomes, as the average household’s purchasing power has clearly declined, despite the millions of jobs created.

This helps explain why so many are people do not feel included in the economic recovery, and why it is not just the Fed, but the entire establishment, whose credibility is shot.

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