Note: This month marks the return of Monday posts of a more economic nature. It is imperative that God’s people understand how the imperial economy works (or doesn’t) and how these economic policies are a part of the imperial machine. The battle for peace and sound money are the same battle. Therefore, it is critical that we understand what is going on in the broader economy and how the powers that be are manipulating the system to their advantage. Hopefully, at the same time some information that may be useful to you and your family may be transmitted as well.
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 came in at 7.9% in June, unchanged from June. This is likely because the labor force participation rate dropped (see below). This drop in labor force participation is why the economy lost 23K jobs last month but the headline U3 rate dropped .1%
As stated the economy lost 23K jobs last month, a nearly 100K miss from the expected 80K gain. Also, the previous months’ numbers were revised downward, as they almost always are.
The Labor force participation rate edged down to 61.4% from June’s 61.5%. This is well below the level of 67.3% in April of 2000 and cannot be wholly explained by the retirement of Boomers. The fact is that less people are actively involved in the labor force, many because they cannot find jobs.
As to where the job were created the “private” sector created 40K and the government cut 53K. Private is in scare quotes because education and health services produced 25K, both of which are heavily dependent upon government spending. Healthcare and social assistance, also government spending dependent produced nearly 23K jobs. Neither of these sectors are sustainable given the government’s dire fiscal situation. Even at that, both of these sectors growth slowed greatly.
Manufacturing produced a paltry 5K jobs, and goods producing on the whole only generated 25K jobs. The leisure and hospitality sector shed a notable 40K in July after losing 61K in June. This is notable because these are the first jobs to go in a downturn and this drop indicates consumers scaling back on discretionary spending.
Diving further into where the better paying jobs are let’s look at Indexes of Aggregate Weekly Hours of All Employees, Manufacturing. This number came in at 91.7, unchanged from June. This is well off the high of 102.6 in June 2006. This indicates that the phenomenon of a “hollowed” out industrial base is not a fiction.
Lastly, let’s look at All Employees, Temporary Help Services. This metric came in at just under 2.5 million, up about 10K 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 113K to about 8.7 million. This has been on a steady upward movement since the pandemic. The measure of those whose parttime gigs make up all their income rose by about 200K last month to 2.1 million. All this indicates some mixed messages regarding the labor market.
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 2.63% annualized rate. This is lower than the headline grabbing 3.5% released in June but still indicates a level substantially above the Fed’s (arbitrary) 2% target.
Nonfarm Business Sector: Real Hourly Compensation for All Workers
This number came in slightly higher than the previous quarter. This too has shown a notable deceleration in the last quarter century. The CAGR went from 1.15% between 1976 and 2001 to .83% between 2001 and today. This further underlies the pressures that are impacting the economy.
Savings and Debt Metrics
The personal savings rate dropped to 2.7%, 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 2.07%, which is getting closer to 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 $861 billion last quarter, down slightly 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.
Productivity
Both the Nonfarm Business Sector: Labor Productivity (Output per Hour) for All Workers and the Nonfarm Business Sector: Unit Labor Costs for All Workers rose slightly and has not been decelerating as much as savings and capital formation have been. Why we think this is happening will be examined in a later post.
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: 287.62
Conclusions
When we put this altogether and view the imperial economy the data point to an economy that is not structurally healthy. The labor market had a sudden drop and actually appears even weaker beneath the headline numbers. The U6 unemployment rate remains high and labor force participation continues to slip. Previously reported job gains have been revised downward and better paying manufacturing employment continues to stagnate. The increase in multiple jobholders and those deriving only part-time income suggest that many households are maintaining their lifestyle through extra work rather than through rising real incomes.
From a sound economic perspective, the most problematic data points are the weak savings rate, decelerating capital formation, and the concomitant stagnation of industrial production. Much of what job creation there is depends heavily on government spending, which is not sustainable. From the Austrian economic perspective we embrace, the artificially distorted interest rates and credit expansion (money supply growth is accelerating again) creates malinvestment. Real economic growth requires real savings as well as productive investment and market guided capital allocation. The data this past month suggest that the economy may be consuming capital rather than building capital.
All of this suggests that the imperial economy is groaning under the weight of expensive foreign misadventures and too many transfer programs domestically. The most likely immediate path is either a recession or a long period of weak real growth due to weaking household balance sheets, inadequate savings, weak capital formation and a softer labor market than even the headlines suggest. Sustainable improvement requires less monetary expansion (a return to sound money), more household savings, leading to greater capital investment and rising productivity levels. This would likely require a severe market correction to bring asset prices in line with reality.
The bottom line is that the imperial economy appears in a late-cycle, overleveraged state which has been structurally weakened over a long period of time. It does not seem that we are likely to get a soft landing. The data suggests caution, some increased liquidity and a skeptical eye toward inflated asset values until savings, production, real wages and private investment show prolonged improvement.
I do not think that this is necessarily the beginning of the “big drop” that is highly likely to occur when the US monetary regime cracks and the world seriously begins to seek a new reserve currency. I will be shouting loudly when that happens. Until then we should all be cautious and be prepared to take more defensive action when the data warrant it. Until then know that God is good and will carry His people home.
Praise Be to God
