U6 Unemployment Rate
We use this metric because it captures those who have given up looking for work, even if they desire employment. It also captures those who want full time employment but can only find part time work. This is more useful than the headline U3 report.
This number came in at 7.7% down .2 from July. The total number of jobs created was 162K. This is a large increase over the 53K that the market expected. Keep in mind that these numbers are likely to be revised downward, as they almost always are. Nonetheless this is a solid growth number. Let’s see if this looks better or worse upon closer examination.
The Labor force participation rate was up slightly to 61.6%. This is still a far cry from the nearly 67% rate in the first years of this century. This cannot be wholly explained by the retirement of many Boomers.
Let’s see where the jobs were created in the past month. Government created 35K jobs, which way up considering the previous month saw government job losses. Leisure and hospitality created 62K, which was also way up from a loss the previous month. Manufacturing showed minimal strength, creating 16K jobs. This is a small number. Health care and social assistance created just over 28K jobs last month. Education accounted for 29K new jobs.
This is really a mixed report. Government, education and health and social services (driven by government spending) accounted for 57% of the new jobs last month. This government driven jobs growth is not sustainable given the government’s dire fiscal position. Also, keep in mind that leisure and hospitality jobs go away as quickly as they arrive and are at the lower end of the pay scale than manufacturing or higher end service jobs. Combined with a relatively small growth in manufacturing employment this still looks like some structural weakness to the U.S. job market.
Diving further into where the better paying jobs are we look at Aggregate Weekly Hours of All Employees, Manufacturing. This came in at 92.1 up slightly from the previous month. This is well off the high of 102.6 in June of 2006. This indicates that the phenomenon of a “hollowed” out industrial base is not a fiction.
Finally, let’s look at All Employees, Temporary Help Services. This metric came in at just under 2.5 million, up about 12K from May. This number has been edging up in the last several months. This is notable as it usually drops prior to a recession.
When we look at those holding multiple jobs this number rose about 112K to about 8.8 million. This has been on a steady upward movement since the pandemic. This 112K increase is 69% of the total number of jobs created in the month just ended. That does not appear to be a healthy situation. The measure of those whose parttime gigs made up all their income fell by 54K last month to 2.1 million. All this indicates some mixed messages regarding the labor market.
One statistic of note. The total of government transfer payments rose 1.2% last quarter to $5.1 trillion. This represents 15% of the GDP and only during Covid was it higher than today. This highlights how much of people’s income depends on the government.
Industrial Production: Total Index
Up slightly from the previous month, but in a continuing flat pattern since the pandemic recovery. This metric has decelerated greatly over the last 25 years. The Compound Annual Growth Rate (CAGR) went from 2.93% from 1976 until 2001 to .51% from 2001 to today. This represents a serious deceleration in better paying jobs in the manufacturing sector.
6% Trimmed Mean CPI
This metric is a better measure of inflation because to takes out all the “noise” and gives a more balanced view of price pressures. It stands at 2.6% annualized rate. This is lower than the headline grabbing 3.4% released recently but still indicates a level substantially above the Fed’s (arbitrary) 2% target.
Savings and Debt Metrics
The personal savings rate rose to 3%, up .3% from the month previous, but down greatly from the sixties through the nineties. This is never a good sign for the economy’s long-term health.
Capital Formation
The real 10-year treasury yield is 2.2%, which is now higher than the cycle high of 2.1% in May 2024. However, this is far below the levels of the eighties and nineties. This should make us somewhat circumspect before claiming that the Federal Reserve is being particularly restrictive.
Net domestic investment: Private: Domestic business measures the amount of capital investment going on in the economy. This is the lifeblood of a healthy economy. This came in at $858 billion last quarter, down 1% from the previous quarter. The CAGR between 1976 and 2001 was a healthy 7.33%. This number dropped to less than half, 3% between 2001 and today. This deceleration is and will continue to have negative consequences for the US economy going forward.
Macro-Economic Indicators
On a monthly basis we offer two macroeconomic indicators. One is the Believe and Obey Recession Indicator, and the other is the Believe and Obey Bubble Barometer. The first is to gauge the likelihood of a recession in the next 18-24 months. The latter is to ascertain if and how large a bubble the market may be in, over 100 being in a bubble. For those feeling especially wonky, the methodology for these indicators is here.
The current numbers are:
Recession Indicator: 100%
Bubble Barometer: 289.88
Conclusions
From an Austrian Economics perspective which I embrace it seems as if the underlying heath of the U.S. economy is weaker than the headlines, or the President would suggest. Business cycle theory focuses on the fact that sustainable growth needs real savings, which leads to capital formation, freely formed interest rates and a productive amount of private investment. If the government and the central bank are engaging is massive fiscal stimulus, and money and credit creation out of whole cloth, this creates the appearance of economic growth in the form of an unsustainable boom. Underneath that is what the Austrian economists would call malinvestment. This means that the underlying strength of the economy is more fragile that it seems. We see some solid job growth numbers but centered around government spending as well as in lower wage service sectors. These areas are dependent on government stimulus rather than being self-sustaining.
The most concerning stat is the weakness in capital formation. Capital is just an economic name for tools. If you have more and better tools you can build more and better products, helping everyone. This capital is a direct outgrowth of savings. Savings remains weak and it seems clear that the economy is not accumulating enough capital to sustain real private growth. Net private domestic business investment has decelerated notably, and industrial production continues to tread water. Since government spending and direct transfers are sustaining current economic activity and savings and investment are stagnating then the economy is actually engaging in capital consumption. It is the financial equivalent of eating your seed corn.
This leads me to suspect that the labor market is weaker than the headline number suggests. The large job number cannot hide the fact that most of this “growth” is government dependent. It is tied to the number of multiple jobholders and the large proportion of jobs tied to government spending. This seems consistent with an economy increasingly dependent upon fiscal and monetary stimulus, while capital formation is increasingly hampered.
In its totality, the picture is that of a functioning economy, but one increasingly dependent on government support, and increasing amounts of debt and capital consumption rather than new savings and capital formation driving sustainable economic growth. The high percentage of GDP that is made up of government transfer payments, plus inflation persistently higher than the Fed’s goal, rising interest rates and the elevated level of the Bubble Barometer all indicate that continued monetary excess, piled upon previous monetary excess are still deeply intertwined in the U.S. economy. This would explain still high asset levels and a distorted and weaker than meets the eye labor market.
Unless stronger savings emerges and a move away from government fiscal and monetary excess the economy is likely not to generate the capital formation that is crucial for sustained growth. Therefore, the risk of recession remains elevated, which would bring serious market correction and a drop in asset values. This would likely be followed by a period of weak growth and tepid economic performance, possibly even the dreaded stagflation.
Nothing that is wrong with this economy is unfixable but the longer the U.S. keeps postponing the needed readjustment and liquidation of malinvested capital the more painful the ultimate correction will be. The ultimate crack up is not yet on the horizon but God’s people should always pay attention and be ready to financially defend themselves from the depredations of the imperial economy.
Praise Be to God
