3 Things: The Labor Hoarding Effect

The Claims Problem

This morning initial jobless claims plunged to the lowest level in the last 42 years. The chart below shows the weekly claims as compared to the 4-week moving average.



Surely, this must be a sign that the economy has turned the proverbial corner as full-employment has finally been obtained. Right? Maybe not.

As discussed earlier this week:

“That really is the point that the majority of analysis misses when they point to jobless claims and the U-3 or U-6 unemployment rates. IF, and that is a big IF, employment was as strong as suggested by headlines then wage growth would be rising sharply and economic growth would be running near levels historically associated with ‘full employment rates.’

However, the chart below, which is the labor force participation rate of 16-54-year-olds as a percentage of just that age group, is representative of the real problem. Just because the BLS chooses not to “count” those individuals, it DOES NOT mean that they have ceased to exist.(The percentage of workers participating in this age group as has fallen for the past 3 months.)”



However, I am not suggesting there has been NO JOB growth. There has. However, it has been a function of hiring due to the increases in population growth, which creates incremental demand, rather than an organically driven surge in overall economic growth and prosperity.

It is there that we find the problem with the reports on jobless claims and the actual economy.

Labor Hoarding

Since the end of the financial crisis, businesses have been increasing bottom line profitability by massive cost cuts rather than increases in revenue. Of course, one of the highest “costs” to any business is labor. One way that we can measure this view is by looking at corporate profits on a per employee basis. Currently, that ratio is near its highest level on record. (Scale below is inverted for clarity)


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