John Hussman’s newsletter continues to be a source of insight into the phony economic recovery in the United States. The April version is called Is The Fed Promoting Recovery or Desperation? It seems that there is indeed a strong link between Fed policy and jobs growth, but you may be surprised (and appalled) to learn what it is and how it works. I certainly was. Hussman took his cue from David Rosenberg, chief economist at Gluskin Sheff and another insightful observer I like to quote on DOTE.
Last week, we observed “Real income declined month-over-month in the latest report, which is very much at odds with the job creation figures unless that job creation reflects extraordinarily low-paying jobs. Real disposable income growth has now dropped to just 0.3% year-over-year, which is lower than the rate that is typically observed even in recessions.”
It wasn’t quite clear what was going on until I read a comment by David Rosenberg, who noted that much of the recent growth in payrolls has been in “55 years and over” cohort. Suddenly, 2 and 2 became 4.
If you dig into the payroll data, the picture that emerges is breathtaking. Since the recession “ended” in June 2009, total non-farm payrolls in the U.S. have grown by 2.32 million jobs (establishment survey, or 2.03 million using Household survey figures).
However, if we look at workers 55 years of age and over, we find that employment in that group has increased by 3.04 million jobs.
In contrast, employment among workers under age 55 has actually contracted by nearly one million jobs, regardless of which survey you use. Even over the past year, the vast majority of job creation has been in the 55-and-over group, while employment has been sluggish for all other workers, and has already turned down.
Employment among workers under age 55 has actually contracted by nearly one million jobs. Hussman is right—this is nothing short of astonishing. So the older folks are getting most of the jobs. But what is the connection with Fed policy on interest rates? Hussman lays it out for us.
For most of history prior to the late-1990’s, employment growth in the 55-and-over cohort was a fairly small and stable segment of total employment growth. Undoubtedly, part of the recent increase has simply been a change in the classification of existing workers as they’ve aged (1945 + 55 = 2000, so the we would have expected to see some gradual bulge in this bracket since 2000 due to aging baby boomers).
But the shift is too large to be explained simply by reclassification. Indeed, while the civilian labor force participation rate has declined significantly for virtually every class of worker since mid-2009, the participation rate for workers over the age of 65 has hit new highs.
The over-55 and over-65 cohorts have a reservoir of skills and experience, but real income is growing much slower than employment, which means that they are not being fully compensated for it. And despite the much-vaunted uptick in hourly wages, real after-inflation wages have been falling. Something more troubling has been underway.
Beginning first with Alan Greenspan, and then with Ben Bernanke, the Fed has increasingly pursued policies of suppressing interest rates, even driving real interest rates to negative levels after inflation.
Combine this with the bursting of two Fed-enabled (if not Fed-induced) bubbles – one in stocks and one in housing, and the over-55 cohort has suffered an assault on its financial security: a difficult trifecta that includes the loss of interest income, the loss of portfolio value, and the loss of home equity. All of these have combined to provoke a delay in retirement plans and a need for these individuals to re-enter the labor force.
In short, what we’ve observed in the employment figures is not recovery, but desperation.
Having starved savers of interest income, and having repeatedly subjected investors to Fed-induced financial bubbles that create volatility without durable returns, the Fed has successfully provoked job growth of the obligatory, low-wage variety. Over the past year, the majority of this growth has been in the 55-and-over cohort, while growth has turned down among other workers.
Meanwhile, broad labor force participation continues to fall as discouraged workers leave the labor force entirely, which is the primary reason the unemployment rate has declined. All of this reflects not health, but despair, and helps to explain why real disposable income has grown by only 0.3% over the past year.
After reading this, I wanted to give myself the proverbial head slap and say why I didn’t I see that? It makes perfect sense, but I was unaware of the astonishing growth in jobs for those 55 and older. It’s not the case that Boomers are retiring in droves, which has driven down the participation rate as so many optimists assume. What’s really happening is that Boomers can’t afford to stop working as they desperately try to make up for lost equity in stocks and homes, and negative real interest rates on their retirement savings. And it looks like they will take any job, no matter how menial and low-paying, to make up this shortfall in their retirement funds.
Well! That shines an entirely new and different light on the jobs situation, doesn’t it? Hussman is right to say that the situation reflects desperation on the part of those 55 and older, not any kind of real recovery in jobs in the general population. The jobs “recovery” is simply another bullshit story promulgated by self-serving politicians, clueless economists and the unabashed cheerleaders in the media who quote them.
But there is some “good news” in this jobs fiasco. Surely you must be wondering what it could possibly be. Well, the upside of this disaster is that a bullshit story will always be revealed for the nonsense that it is through the efforts of honest observers like John Hussman and David Rosenberg. They will be mostly ignored because people generally (and Americans especially) do not want to deal with Reality, but the real story is out there somewhere, and due to their efforts we know what it is.
My thanks to people like Hussman and Rosenberg for telling us what’s really going on.