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Now the Bad News: Those August Jobs Were Rented

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Despite what some on Wall Street say, the August jobs report shows little hope for recovery.

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There was a time last winter when the stock market touts who appear on CNBC -- frequently disguised as Wall Street "economists" -- argued this jobs crash was all a giant mistake. They claimed that following Wall Street's heart attack in September 2008, Main Street had panicked -- indulging in an orgy of unnecessary firings. But medicated by the Fed's unprecedented regimen of experimental drugs -- $1.6 trillion of quantitative easing and 18 straight months of the zero-interest-rate policy (ZIRP) -- the animal spirits had been tranquilized, paving the way for a surge of compensatory re-hiring.

Well, the medication has had no such effect during the eight months since December. We've regained only 1.5% of the 8 million jobs lost during the prior two years in the goods-producing and core private-business-services segment of the economy. Stated differently, the rate of gain has been essentially a rounding error -- a pick-up of 15,000 jobs per month compared to the 330,000 per month loss rate during the Great Recession.

At the last eight months' growth rate it would take 44 years to recover the jobs lost in these segments since December 2007, and more than a half century to retake the employment level first reported when Bill Clinton was president.

It will be argued, of course, that job growth in these categories will soon accelerate, thereby drastically foreshortening this mind-boggling delay in the recovery scenario. But why? The national economy is self-evidently defaulting to stall speed. After an inventory-fueled rebound of 5.0% in the fourth quarter of 2009, GDP growth rapidly cooled to 3.7% in this year's first quarter and 1.6% in the second quarter. And after the recent big downward revision of June construction spending, last quarter's figure is going to get even slimmer.

At the same time, already reported results for July and August on key drivers like core CapEx, residential construction, inventories, and foreign trade virtually guarantee that the GDP expansion rate will be close to zero in the third quarter. Not surprisingly, the latest bullish mantra is that this stall is merely the pause that refreshes, and that the big rebound is -- yet again -- just around the corner. But an examination of the specific headwinds facing the "fiscally dependent" segments of the job market, as well as those economic precincts that produce goods and core private services, suggests that any such turning point lies years into the future, at best.

First, the nation's unsustainable reliance on fiscally dependent job growth can't be gainsaid. During the seven-year boom ending in December 2007, total non-farm payroll growth averaged about 86,000 per month. About 22,000 per month of this growth was attributable to "half-job" gains in the leisure and hospitality segment. Beyond that, the remaining 62,000 new jobs each month were entirely sourced out of the nation's public exchequer. Specifically, the HES complex (including state and local education) generated 57,000 new jobs per month and Core Government Operations (federal, state, and local government outside of education) added a further 10,000 monthly. That was it. Those vast stretches of GDP that host what's otherwise known as the "private sector" gave birth to lots of puts and takes among various job categories within, but generated zero job growth as a whole during the greatest boom in post-war history.
No positions in stocks mentioned.

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