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On the Mayans, the Robots, Our Fears, and Our Future

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What do Mayans and robots have in common? Their narratives are driven by fear and distract us from the future. And if we can't overcome our fears, the future is always going to disappoint us.

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A couple weeks ago we got our December 2012 jobs number, and it showed that there were 155,000 jobs created during that month. Aside from some of the revisions in previous data, the report was rather boring. The jobs number came in-line with expectations and unemployment has continued to trend lower. There haven't been any precipitous drops, no gangbuster outbreaks in job creation. But the trend has been decisively lower.

Also in the month of December, the 21st came and went rather boringly. No black hole vortexes opened up in the sky above to send us to a parallel universe, nor were there any biblical plagues unleashed on us all. The world didn't end and we're still here. And that means we're still here to discuss and figure out one of the most talked-about issues we've had to deal with the past few years since the credit crunch: the moribund recovery in the jobs market, and with it, our economy.

The Jobs Market: Where Are We?

So let's take a look at the jobs market as it is today. We know that the December jobs report said 155,000 jobs were added that month. Since the end of the recession in the third quarter of '09, the economy has only created 83,000 jobs on average. But the first few months of the recovery still saw job losses, so if you wanted to look at just the past three years, the economy has averaged about 130,000 new jobs each month since the beginning of 2010.

The Fed has made no secret that the target unemployment rate for them to ease off from QE is 6.5%. And since we're still at 7.8% in U-3 unemployment, that's more than a full point away from the Fed's target. So the easy Fed policy is bound to continue, despite the polarity of views we may be seeing at the Fed because the predominant view now is that the pace of job recovery is lackluster.

One of the things you hear constantly about the jobs market is that we don't make things anymore; our economy is nothing more than a bunch of coffee baristas, retail clerks, and burger flippers. So I wanted to throw up a few charts and pose one simple question to that notion: Oh, really? This first chart goes back 60 years, and as you can see, employment in goods-producing industries as a percentage of the labor force has been in decline. Since the Korean War.



Meanwhile, industrial production has gone in one direction as well -- the opposite direction of the employment chart.



This next chart focuses on the last recession and the recovery.



You can see durable goods industrial production has resumed growth and non-durable goods didn't fall as much as durable goods. Having said that, non-durable goods industrial production also hasn't had the same trajectory of recovery that durable goods has had. But nevertheless, the idea that we don't make anything anymore is just naïve and hopelessly nostalgic. It's kind of like driving a car, listening to the radio, and wishing you were Amish and waking up at the crack of dawn to take your horse and buggy into town to stock up on provisions. Actually, it's probably more like scrolling through your digital set-top box hooked up to a multiplex-sized HDTV with a theater-quality sound system only to watch nothing but 60-year-old black-and-white sitcoms.

But for now, the more important question to ask about manufacturing in this day and age is what do we make, and how? And given the changing demographics of this country, the question I want to start with is this: Is this economy really capable of creating 250,000+ jobs a month? Is this expectation realistic? Because if the population is getting older faster than our birth rate can keep up, then the number of people leaving the labor force will be rising more because of secular demographic forces than anything else.



Said differently, what if the tools being used to track this economy need to be recalibrated? Or changed completely? This question isn't as crazy as you might think. Peaks in the number of workers aged 25-34, 35-44 and 45-54 are all behind us. So with these series in decline, where are the additional 150,000 jobs each month going to come from? They're not going to come from anywhere for now. Maybe as the 16-19 and 20-24 year old cohorts age, the high-school kids and college-aged adults will add to the job rolls in a few years.

But is it all just demographics? Is our destiny to be found in a bunch of actuarial tables? Did Malthus foretell our future a couple of hundred years ago? Hardly. There are plenty of other forces at work. One issue that has gotten a lot of attention since the holidays is the idea of technology replacing people in the labor market. And to try and understand that dynamic, we need to take a closer look at what the disruptive nature of technology is doing.
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