Payrolls: Flat is the new up

By Felix Salmon
September 3, 2010
payrolls report that even though employment fell and unemployment rose, markets are looking extremely exuberant.

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Everybody was so nervous going in to this morning’s payrolls report that even though employment fell and unemployment rose, markets are looking extremely exuberant.

There’s definitely reason here for a small sigh of relief. The private sector added jobs in August — not enough to keep up with population growth, and not even enough to counteract the effects of census workers being laid off. But hey, the private-sector employment number was positive rather than negative, that’s gotta count for something.

The big picture here is, as Tony Fratto says, that the job market is basically flat. The official release generally has a pretty good take on things, and the language there is clear: the unemployment rate and the 14.9 million number of unemployed are “little changed in August”. Break it down by race or age, you still see “little change”. The labor force participation rate and the proportion of the population with jobs? “Essentially unchanged.” The number of people who want a job but didn’t actively look for one in the previous four weeks? Again, “little changed”.

The big number, total nonfarm payrolls, “was little changed”. Retail employment “was about unchanged over the month”. Elsewhere, employment “showed little change in August”. You get the picture.

Flat, then, is the new up — which only goes to demonstrate just how worried the markets are about a double-dip recession. The syllogism is easy. This payrolls report would never be good news in a growing economy; this payrolls report is good news; therefore, the economy isn’t growing. So don’t get too excited about bond yields rising today. We’re not remotely in full-bore recovery mode yet.


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You say “We’re not remotely in full-bore recovery mode yet.”
How about “We’re no-longer in recovery mode”?

Posted by yr2009 | Report as abusive

Excellent analysis, Felix. I especially like the reasoning in the last paragraph.

As regards rising bond yields: the bond vigilantes are currently in flight and the market is in full ‘risk-on’ mode but that will likely fade. Less-bad news is no substitute for good news – although it beats grim news any day of the week!

Posted by Gotthardbahn | Report as abusive

Some good points made in this article – what I think is interesting is that as the bond and equity markets both appear to be pricing in another recession, any growth (or perhaps even no growth) is likely to lead to equities rallying and bonds selling-off over the next six-to-eighteen months.

Posted by spbaines | Report as abusive

Investments — flat is the new up. If you can achieve 2% to 4% real return over the next thirty years, you’re doing great.

We ARE in recovery mode. This IS the recovery. It isn’t going to get much better than this, at least not within ten years, so learn to live with it.

Posted by TFF | Report as abusive

@TFF, it is an interesting perspective and one that I am mulling over. I agree that this is recovery. As for the future, I think I am more optimistic.

It does seem like government debts are eating so much capital and savings that it is sucking the capital, valuations and returns out of many other assets. That is America’s albatross.

On the bright side is American productivity. I don’t know if statistics are to be believed but American productivity numbers are soaring. Productivity collapsed during the Great Depression so comparisons with the G.D. by some of the more wild-eyed bloggers out there are just wrong.

Productivity is the alpha and the omega, the truest long term economic engine and the source of rises in standards of living. Productivity looks real to me. It is due most of all to automation and our amazing machines. One busy farmer with a fancy combine can feed 10,000. ‘Lights-out’ factories can manufacture goods by the millions with just some maintenance of the machines.

I have a suspicion that our companies can actually do even better in the present environment. Why? Companies’ biggest cost is wages, and high unemployment is perfect for keeping a lid on wages. Profitability at major companies is very good and I don’t think this is a mirage. Top line growth will come from China. I don’t know much but I do know that 1.2 billion is more than 300 million and when Chinese consumers reach a decent level, US companies will have a lot of selling to do.

Me, I’ll be buying stocks going forward. And probably American land.

Want one more reason to be bullish on America? Success draws growth to itself. As other first world economies see demographic decay, America will stand alone as the best destination for immigrants.

China? Not a chance. It is overcrowded, completely unfree, wages are poor and the air is unbreathable. China permabull Jim Rogers announced loudly and often that he was packing his bags and moving to China and then surprise, surprise, he chose Singapore.

The Vancouver real estate spike? That was driven by successful Chinese people staking their claim to North America. We will be net beneficiaries smart Chinese coming here for the next century. India? I have been there twice and almost everybody who can wants to get to someplace like Australia or America. We get their best. Conditions there are much worse than in China. Mexico? Apparently it is now almost unlivable. Koreans study English ferociously. Elites will flock here as they have in the past, but more so.

Growth comes firstly from two things, productivity and population growth. I believe we have both. Now that America is learning to save again, we can be optimistic about future sources of investment, too.

Posted by DanHess | Report as abusive

Dan, excellent essay and I pretty much agree with you. Some one-line responses:

- Productivity absolutely drives the standard of living. We’ve got a bit of an overhang to work off, however, as I don’t think the massive trade deficits can continue indefinitely.

- It is a good time to be (or own) a multinational. Revenues may be flat in the US and Europe, however they are increasing very rapidly in the BRIC nations. As you say, wages will remain flat for at least a decade.

- America would be a great destination for immigrants IF we weren’t so xenophobic. Craft an immigration policy that feeds growth and many problems will instantly resolve. Unfortunately I don’t see that happening.

- I’m heavily invested in multinational stocks. Would love to buy bonds, because I’m close enough to retirement for stability to be attractive, but the pricing is just WRONG.

Posted by TFF | Report as abusive


We have no problem with productivity–it is growing in the U.S. But how can productivity gains offset a China market paying $25/day for labor? Should U.S. workers price themselves competitively?

This is just more Right-Wing mumbo jumbo aimed at killing our middle class, for the benefit of offshring multinationalist. You try and live off $25 per day in the U.S. without getting health insurance. See you under the bridge one night.

Posted by TaxLawyer | Report as abusive

@TaxLawyer –

How was TFF’s little quote ‘right-wing mumbo jumbo’?

Multinationals either take advantage of the best labor price or else they lose out to other multinationals from other countries. Managers have a fiduciary duty to their shareholders. They are required by law to act in the interests of their shareholders.

What to you propose? A Smoot-Hawley-Krugman tariff act?

Posted by DanHess | Report as abusive

Dan, I generally don’t bother to respond to anybody who responds to my statements with political labels. Those who can’t think for themselves are not worthy of a response.

Other than that, I probably don’t disagree with him much. It is going to be a tough adjustment (for the US) before the gap between the US and Chinese labor markets is closed. This is part of why I don’t expect much GDP growth in the US for a while. Chinese wages are rising pretty rapidly, and there are some advantages to operating here, but it is a LARGE gap to close.

Nor do I disagree with you. Isn’t a pleasant situation, but the cure would be worse than the disease.

Posted by TFF | Report as abusive