Payroll Friday------Bubblevision's Live Action Romper Room

Payroll Friday puts you in mind of a live action Romper Room. The bubblevision children get big-eyed month after month---even as they hear the same old fairy tale from the BLS. And make no mistake, the headline jobs number is tantamount to fiction, even as it parades as science.

For all practical purposes, the monthly establishment survey number, which was 223,000 for April, is the ultimate emission of the momo game. The BLS essentially projects a trend line of gains in the various cells which make up the establishment payroll slate and then modifies them in each month's report by the deltas in the rag-tag survey results taken by the Census Bureau, as well as its own concoction of statistical flim-flam for seasonality, birth-death and myriad other technical tinkerings.

But what the headline number is not, is the result of a valid sample of US businesses, scientifically extrapolated to the entire economy such as that represented by the Gallup report on employment. As a result, once a trend line of business cycle recovery gets built into the BLS projection, the monthly number will always come up +/- 200k, save for an occasional monthly aberration or two. The headline is thus the product of an a priori model, not a current empirical measurement.

Every so often, of course, the economy hits a downdraft and the momentum factor goes into reverse. When that happens, massive downward revisions are made to recent monthly results, while current monthly totals show deep job losses. And then this bonfire of recession period job losses is revised sharply lower yet again in the annual benchmark adjustments.

The point, however, is that there is no way of knowing what share of the huge Great Recession jobs losses now shown in the official BLS data represent corrections of previous model overstatements, and how much represents actual pink slips in the main street economy. The answer is lost in the fog of BLS prestidigitation, and that particular den of deceit and incompetence is not about to open its books to the outside world.

It is not all that amazing, of course, that the headline chasing robo traders swing the equity markets by upwards of one-half trillion dollars on occasions like last Friday. What is far more serious is that the passel of Wall Street economists and strategists gum endlessly about the meaning of what is essentially noise, and that the monetary politburo which runs the casino hangs on the implications of each and every report.

The lunacy of all of this is crystalized by an important milestone in the April report. It just happen that there were 109.1 million jobs outside of the HES Complex (health, education and social services) posted by the BLS back in December 2007 when the previous business cycle peaked. During the next eighteen months through the end of the Great Recession (as vouched by the National Bureau of Economic Research) 8.2 million of these jobs were pitched overboard in the BLS' reckoning-------reflecting both actual pink slips and the statistical Indian-giving that is built into the BLS model.

Now we come 70 months latter after endless Payroll Fridays during which the boys and girls on bubblevision marveled at the new jobs created practically each and every month.

Yet not exactly. Last Friday's report showed that there are now 109.2 million jobs outside of the HES complex. That is to say, 100% of the "new" jobs reported on Payroll Friday for the last six years were actually just "born again" jobs. Across the entire range of construction, manufacturing, retail and wholesale, FIRE, services, non-education government at all levels, the professions and the lesser service sectors there are no more jobs today than there were in December 2007.

What's worse, there are only 2% more jobs in the entire US economy outside of the HES Complex then there were at the turn of the century. This means that the rate of job creation over the last 15 years was a paltry 14,000 per month. And we are supposed to get all bulled-up over that?

Nonfarm Payrolls Less HES Complex Jobs - Click to enlarge

Nonfarm Payrolls Less HES Complex Jobs - Click to enlarge

You might say thank heavens for the HES Complex and its 32.1 million jobs, but even there you are dealing with a momo train of another kind, not free market capitalism generating growing output and rising payrolls. Owing to the $1.5 trillion being spent on medical entitlements and another $1 trillion each on tax-subsidized employer health plans and tax-supported education at all levels, including the massive student grant and loan programs, the HES Complex jobs count has risen by nearly 8 million or 32% since the year 2000.

But for crying out loud, that's not a measure of "recovery" in any sane sense of the word. It's the mathematical expression of a debilitating fiscal dead-end on the funding side and the massive waste and inefficiency of the health care and education cartels on the production side. In a word, the Payroll Friday revilers for most of this century have been celebrating the very trend that is devouring what used to be capitalist prosperity in America.

HES Complex Jobs - Click to enlarge

HES Complex Jobs - Click to enlarge

But wait, as they say on late night TV. There's more and its worse. Even as the April BLS report brought us back to the December 2007 jobs count outside of the HES Complex, the internals of these 8 million "born again" jobs were decidedly negative. Namely, the US economy still has 2 million fewer breadwinner jobs than the 72 million construction, manufacturing, and full-time/ full pay white collar and service jobs recorded in December 2007.

Needless to say, these breadwinner jobs on average pay $50k per year and are the heart of the productivity-generating and family-supporting economic core of main street America. So don't say that all the allegedly "enlightened" statist policy that we have had since the turn of the century------$14 trillion more of public debt and a 9X expansion of the central bank's balance sheet----has done anything to help. It self-evidently has not.

There are still measurably fewer breadwinner jobs than there were at the turn of the century. Indeed, should the current so-called recovery rollover into its destined recession in the next year or two-----the implication will be that the 2000 high water mark for breadwinner jobs will never again be breached. Ever.

Breadwinner Economy Jobs - Click to enlarge

Breadwinner Economy Jobs - Click to enlarge

In fact, we got back to break-even outside the HES-Complex in April only because there have been a passel of new part-time, low pay jobs in bars, restaurants and hotels. In fact, as shown in the chart, the US economy has generated 3.3 million new jobs in the bartender, waiter, bellhop, maids and hot dog vendor categories since the year 2000. That compares to just 2.6 million net new jobs in the entire economy outside of the HES Complex during the same 15 year period.

That's right. After a decade and one-half of Payroll Friday brouhaha, it turns out that the very bottom of the jobs ladder accounts for 127% of all the new jobs this century!

Bread and Circuses Economy Jobs - Click to enlarge

Bread and Circuses Economy Jobs - Click to enlarge

Throw-in some additional jobs in the retail, temp employment agency and personal services sectors, and you have the complete picture. That is, the 2 million job loss in the breadwinner sector has been off-set by an equivalent gain in the larger part-time economy.

Part Time Economy Jobs - Click to enlarge

Part Time Economy Jobs - Click to enlarge

Needless to say, the jobs depicted above average about 26 hours per week and pay under $14 per hour. In round math, these "slots" generate less than $20k per year in average gross pay, and hardly a minimum wage equivalent on an after-tax basis.

So here's the thing. Given all of their supposed sophistication and enlightenment about economics, you would think the Keynesian commentariat and the monetary politburo would recognize that we are no longer in Kansas.

To wit, the mid-century industrial economy in which most "jobs" involved 5-6 days per week and a full lunch pail is long gone. Likewise, retail clerks whose hours coincided with opening and closing times of their stores have been displaced by the Wal-Mart labor scheduling system which operates on 15 minute intervals. Indeed, back then even delivery boys worked a full week, whereas now they bid out their time one hour at a time on the internet.

In short, work has been atomized and pay has been marginalized in an open economy world in which the "China wage" directly drives pay rates in the tradable goods sector; the India wage heavily impacts outsourceable functions in the service sector such as call centers; and cheap capital, automation and self-service labor weighs heavily even in bars and restaurants.

In that context, one job is not one vote for "recovery" and growth. Not even close. That truth is made powerfully evident by the Social Security Administration's annual compilation of worker payroll records from millions of US employers. As shown in the graph below, the disconnect between the jobs count and wage and salary earnings is ginormous.

Wage Distribution of US Workers - Click to enlarge

Wage Distribution of US Workers - Click to enlarge

The chart represents the 155.8 million workers with separate payroll records in 2013. As a group, they earned $6.7 trillion, meaning that each quintile represents $1.34 trillion of wage and salary earnings. Remarkably, it took 91 million workers in the lowest quintile to earn the same amount as the 4 million workers in the top quintile.

Yet the point is not about the distribution. Undoubtedly most of those in the upper quintiles are worth what they are being paid in the marketplace. Instead, the graph powerfully underscores the atomization of jobs and marginalization of pay that has occurred at the lower tranches of the jobs market.

Specifically, among the 91 million workers in the lowest quintile---not only was the average earnings rate exceedingly low at $14,600, but when you unpack the data for this group the degree of atomization and marginalization is even more dramatic.

Thus, within the lowest quintile of earnings, there are 23 million workers with payroll records who earned less than $5,000 during the entire year and an average of only $2,000. Accordingly, unless there are massive violations of the minimum wage laws, the average worker in this group could have only worked an average of six hours per week during the year.

Likewise, another 14 million in the lowest quintile earned between $5-10,000 and an average of $7,400. Again, even at the minimum wage, these workers could not have been employed more than 19 hours per week.

And on it goes. The next 12 million workers in the lowest quintile earned an average of just $12,500 in 2013 and the next 12 million earned about $17,500. In all, two-thirds of the workers in the lowest quintile----61 million workers in total----earned between $2,000 and $18,000 during the course of 2013.

In short, the very project of counting "jobs" is essentially laughable in the context of the US economy as it is currently structured----for better or worse. Indeed, the 60-90 million "jobs" at the bottom of the jobs ladder constitute atoms and fragments that cycle in and out of the BLS numbers from month to month, and also account for much of the swing between the lows and the highs of the Fed's serial bubble-driven business cycles.

To be sure, the rest of the graph depicts a profound social issue. It is not at all clear that in an honest free market-----one undisturbed by massive welfare state safety nets, the destructive payroll tax levy on low-productivity jobs and the innumerable barriers to enterprise thrown up by the state---- that the top 16 million workers would earn as much in wages and salaries (capital gains and property income are not included) as the bottom 120 million.

But regardless of the equities and efficiencies of the current labor market, one thing is abundantly clear. The Payroll Friday report amounts to virtually meaningless noise.

It is bad enough that the bubble vision Romper Room and the casino robo-traders are oblivious to this reality. What is scary is that the Eccles Building is just as clueless.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

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