While all sorts of people are doing victory laps over last week’s feeble employment situation report I find myself growing increasingly alarmed at the state of the economy. Read this advisory from John Mauldin as a gauge of why. Incomes have been flat for a decade, GDP (exclusive of government spending) flat for a decade, millions remain unemployed, we’re 18 months into a recovery, and recoveries don’t last forever.
I’m also concerned that birth-death ratio adjustment, a sort of fudge factor, is such a high proportion of total private sector jobs reported. I can’t reconcile that with this from John Robertson of the Atlanta Fed:
The QCEW data also showed that the number of business establishments with payrolls in the United States has remained stuck at around 9 million since late 2007. By comparison, in the early 1990s there were about 6.5 million establishments, a number that rose to close to 8 million in 2000 before peaking at 9 million 2007.
The net creation of business establishments—that is, physical locations for conducting business such as manufacturing plants, retail stores and business offices—has in the past been a key ingredient in job growth in the United States. This growth is driven partly by demand from newly created businesses and by mature firms expanding their footprint by opening additional locations. The demand for physical space is also clearly important to the commercial real estate industry, which has been burdened by elevated vacancy rates in many markets and generally low demand for new space.
Another trend from the QCEW data is striking—the number of employees per establishment is much lower than it used to be.
Doesn’t this also call the birth-death ratio adjustment into serious question? Things just ain’t what they used to be and, consequently, past history is no indicator of future performance.
Established businesses rarely do a lot of new hiring (over the last couple of decades it’s been more the other way around). If new businesses aren’t hiring the way they used to or aren’t being created at all, where will new jobs come from?