The New Economy Circa 1990

I've argued in several posts, most notable here and, just this past September, here, that current employment expectations are based upon econometric models built upon data from an economic era prior to 1980 which no longer accurately describes the US economy. In the linked July post, I wrote,


"Prior to the 1991-92 recession and recovery, you are looking back to 1982-83, the early Reagan years, now very nearly thirty years ago. For perspective, was the 1960 economy different from that of 1930? Very much so. And the 1980 economy was so radically different from that of 1950, thanks to electronics and technological advances in communications as to make forecasting the former with models of the latter seem laughable.I suspect that's what is happening now. Those analysts and economists harking back to the early 1980s and using conventional models with estimates of consumer spending and labor growth have missed some important transformations in the US economy of 2009."

In September's post, I contended that, in addition to outdated economic models, other changes in communications and financial markets have had unaccounted-for impacts,

"It's safe to say that business communications and information movement has changed more dramatically and functionally from 1980-2010 than from 1930-1960, or from 1960-1990.

Specifically, the recent period has smoothed supply chain management between companies, so that the holy grail of goods-producing companies, inventory management that is as synchronous with retail sales as possible, has come a lot closer to reality.

Now add to this the rise of outsourcing, both onshore and offshore, and you have corporate employment becoming less sensitive to production volumes. Employment at suppliers becomes more volatile, but those jobs tend to be lower-compensated than the ones they replaced at the larger corporations.

Now add to this mix the public consuming business and markets information via free cable networks, such as CNBC or CNN. Today's consumer can view the reaction of institutional investment managers to some obscure report, previously unknown to consumers, such as durable goods orders, or employment reports, in real time.

Thus, consumer spending and confidence are able to be affected nearly immediately by financial market reactions, which affect the wealth of consumers via asset prices in their various investment accounts.

We probably have a tighter-, faster-linked series of economic phenomena which affect each other as inputs and outputs of information, goods and money flow, than ever before. Certainly far more than thirty years ago."

In Mark Gongloff's "Ahead of the Tape" column in this morning's Wall Street Journal, I read some rather significant reinforcement for my views.

Bear in mind that just an hour ago, the monthly employment report sent the S&P futures soaring nearly 12 points, or almost 1%, when initial job losses for November were announced as only about 12,000. The official initial unemployment rate for November edged down slightly, from 10.2% to 10%.

Never the less, Gongloff wrote, in part,

"The job market is getting less bad, but a full recovery remains a distant hope.

But fast-snapback hopes are countered by a mountain of data suggesting the recovery from this recession will be just as jobless as the prior two.

A record 9.3 million are working part-time because there's nothing else available.

New claims are falling, but the number of people drawing regular or extended unemployment benefits is holding steady at nearly 10 million.

Since May, more than a million workers have left the labor froce, which has essentially stagnated since November 2007, notes Miller Tabak economic strategist Dan Greenhaus. If and when people look for work again, they could push unemployment, which is a percentage of the labor force, much higher."

Gongloff reminds us that, while unemployment can't worsen forever, what we are left with currently is a lot of unemployed people who aren't going back to work. A lessening of new unemployed does nothing to affect this. Despite this morning's manic investor reaction to the jobless numbers, it's all about loss rates, not growth in jobs.

There is still no new net growth in jobs on the horizon, and, as one economist noted last week, it would take four years of 200K jobs/month growth to asborb all of the idled workers.

But what I found particularly satisfying were these closing passages in his piece,

"It is likely no accident that this and the prior two recoveries have been more or less jobless, with globalization and technology making it increasingly easy for companies to sharply cut labor costs.

"With the third jobless recovery, you have to say we shouldn't have expected companies to behave as they did in the 1960s or the 1970s," said Stl Louis Fed President James Bullard.

"We should expect this as the normal state of affairs." "

I've highlighted Bullard's remarks in red to emphasize his, and my, point.

It's not your father's economy anymore. It's an entirely new ballgame.

Those who cheer the slowing of joblessness, as equity investors did within seconds of the 8:30AM jobs data this morning, evidently don't comprehend our current situation.

As Gongloff detailed in just unemployment numbers, the US economy is far from healthy. And he's not even focusing on the financial sector's continuing weaknesses and dysfunctionalities.

I'm not a huge fan of pattern-fitting curves from one decade on those of decades long past. That said, without resorting to exact pattern-matching, let's recall that the Great Depression's equity markets featured several bull markets amidst the decade-long slump in those markets.

Living in the present, immediately post-September 2008, it's easy to understand why the equities market rally from March to now seems like a natural reaction, and the return of healthy US economic and financial markets.

Instead, for so many reasons, not the least of which the enormous amounts and different manners of federal government intervention in financial markets and the economy, I suspect we have only seen a brief bull rally amidst a continuing weak equity market which reflects a still-troubled, non-job-creating weak US economy.