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Did Washington Save the Economy? Part 1

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A "jobful" rebound is unlikely to goose the recovery.

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But even these figure overstate the case because notwithstanding the consumption binge evident in the shopping malls, housing market, and car dealerships during the bubble era, two-thirds of the job growth during the Boom period occurred elsewhere -- namely, in the HES Complex. Specifically, the complex generated 4.7 million new jobs or 57,000 per month. This is crucial because demand for health, education, and social services was funded not out of discretionary private incomes and bubble-era home ATM accounts, but from the Governmental Fisc (Federal, state, and local revenues and borrowings) and from open-ended payments out of the private health insurance system.

These funding sources made the HES Complex impervious to the macro-cycle -- so long, that is, as this infinitely elastic financing gig held-up. But now, as will be amplified below, the decades-long advance in the health, education, and social complex may be finally heading into a brick wall. The Governmental Fisc is exhausted, and the heretofore unimpeded flow of third-party health-insurance payments is likely to slow to a trickle as ObamaCare steadily strangles the system over the years ahead. Consequently, the cyclical jobs-rebound case depends on the outlook for the balance of the economy. But therein lies the rub. The US economy's Boom Period jobs-growth record outside of the HES Complex was shockingly anemic, registering just 29,000 new jobs per month over the seven-year period.

As will be seen, even this scrawny figure may not be replicable in the period ahead -- at least to the extent that job growth in the balance of economy reflected bubble-era activity levels. For instance, the construction and FIRE (finance, insurance, and real estate) segments contributed about 20,000 per month of job growth during the seven-year Boom. But owing to the great housing and financial meltdown during the Slump, these segments shed in excess of 2.3 million jobs in the 24 months ending last December. True enough, some of these were temporary losses and will be recovered as the economy strengthens. But the larger point is that construction and FIRE sectors developed huge excess capacity during the Phony Boom of the past several decades -- capacity that's now been permanently liquidated. Therefore it's highly unlikely that construction and FIRE will generate any trend growth in jobs at all during the upcoming expansion cycle.

Likewise, during the Boom another 30,000 new jobs per month were generated in the Leisure and Hospitality and the Personal Services (repairmen, household help, trainers, etc,) segments -- nearly all of which are directly dependent on discretionary consumer spending. Again, some portion of the 750,000 jobs lost from this segment during the Slump is likely to be recovered over the course of the next business cycle. But a consumer shorn of his home ATM account and in the process of rebuilding his savings isn't likely to have anything close to the discretionary spending power that fueled job growth in these segments during the last cycle.
No positions in stocks mentioned.

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