Job Numbers Break Records. Very Little Changes.

August 7, 2018

Since the Great Financial Crisis, the economy has been subject to more anxious scrutiny than at any time in my life, replete with awful political and "drive by" analysis. We've been hitting some fresh records in the levels of Initial Jobless Claims for unemployment, which haven't been this low since early 1973. That year, the tallest building in the world, Sears Tower, was completed. We've also seen records fall in several categories of "U" rates for the general working population and minorities. Since the data is now reported in the manner of basketball scores, but with far less analysis and time devoted to explaining them, some of the narratives coming out of the data aren't really squaring with the reality on the ground.

 

And the reason is that the numbers, by themselves, don't explain economic activity and job creation.

 

 

Most of our economic activity is centered around densely populated areas, i.e., cities. It's also where many Democratic voters live.

 

This has political ramifications besides economic ones. One of the narratives from the last election, and one that still informs our present politics, is that of the "forgotten American" who lost his job to imports or what is vaguely labeled as "globalization." And that's in spite of the fact the country experienced a very long and consistent streak of job growth, which was quite significant in historical terms. But of course, the economic numbers didn't tell the whole story, and apparently there were a few other things bugging some voters that we won't go into here.

 

But as job growth continues through 2018, albeit at a slightly slower pace, and output is rising, it seems the "Forgotten Americans" are still being left behind. The first signal I received on this was one of declining labor participation in most Red states, while it was climbing in most Blue ones. Later, some more confirmation came my way through the AP, which crunched some data from the Department of Labor, and found that just as in the post Crisis era, close to 60% of the job growth since the 2016 election was in areas where Mrs. Clinton had won, and that while 19.2% of "Blue" counties had shed some jobs, 35.4% of "Red" ones had experienced job loss. In other words, the trend of the past decade is still intact. Despite all the rhetoric, economic growth (and GDP, for all of the noise) is still heavily clustered around dense urban areas, and the rural ones are still losing ground, and population. Some of the stories you're hearing about the inability to find workers is due to that. But as money and wealth pour into large cities, there is little in the way of spillover to neighboring communities. This is something certainly worth pondering.

 

The point is that most people don't understand that so much of what we call "data" has a large distributional skew to it, and labor markets don't sort and clear themselves in the neat, ordered way they imagine when the BLS releases it's data every month. And flows of capital investment surely have a highly concentrated bias. Location counts, population density counts, wages count and availability and variability of opportunity count.

 

 

 

 

Moreover, an interesting factoid was discovered by someone doing yet another election post mortem. (Yes, they're still at it.) As a rule of thumb, if you want to safely predict electoral preferences, simply go by population density. While there are some variables, any area with a population density greater than 900 people per square mile will vote Blue. Any area with a population density below that, again, with some wiggle room, will vote Red. What this means is we have a country where there are no "States," and there are no "Counties." The country is merely a collection of scattered clusters of concentrated economic activity, surrounded by vast tracts of sparsely populated communities with little in the way of growth prospects.

 

A few people who spend their time worrying about these issues as a matter of public policy are pondering the ramifications of this, and they're trying to come up with some solutions. But it will be difficult to overcome such a massive macro trend with a few well meaning initiatives in the heartland. The future seems primed for disappointment.

 

 

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Donald R. Davret, Investment Advisor Representative

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