Politicians, Wall Street, and the Federal Reserve Bank want you to think the economy is doing great thanks to the big improvements in the labor market.
However, Janet Yellen, who testified before the Senate Banking Committee last week, admitted that the labor market isn’t so rosy.
“Too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective,” said Yellen.
What Yellen is trying to say in her special brand of Fedspeak double-talk is that the job situation is going to get worse.
There are currently 30 million unemployed or severely underemployed Americans and I doubt that many of them are celebrating the drop in the unemployment rate.
Case in point: Take a look at the oil industry.
One of the biggest drivers of recent job growth was the oil industry, thanks to improvement in fracking technology.
The collapse in crude prices has sidelined hundreds of oil- and gas-drilling rigs in recent months. Some 1,300 rigs are active through February 13 in the US and Canada, down 30% from about 1,860 rigs in November 2014.
Energy consulting company Wood Mackenzie predicted that another 15% of oil rigs will be idled by the summer. Drilling rigs “are currently being stacked at an alarming rate,” said Scott Mitchell of Wood Mackenzie.
Staffing firm Challenger, Gray & Christmas put out some actual job numbers related to the collapse of oil prices:
Job cut announcements surged to their highest level in nearly two years, as falling oil prices prompted cost-cutting efforts in energy and related industries. In all, US-based employers announced plans to shed 53,041 jobs from their payrolls to start 2015; with 40% of those directly related to oil prices.
Of the 53,041 job cuts announced in January, 21,322 were directly attributed to the recent and sharp decline in oil prices. Most of these cuts occurred in the energy industry, where employers announced a total of 20,193 layoffs. The January total is 42% higher than the 14,262 job cuts announced by the energy industry in all of 2014.
Don’t forget; these oil jobs are among some of the highest-paying blue-collar jobs in the country, so losing one oil job is like losing five or eight or ten hospitality-industry (“Would you like some fries with that, sir?”) jobs.
Maybe that’s why despite the stock market hitting all-time highs and President Obama taking economic victory laps on TV, Americans aren’t very optimistic about their futures.
The Conference Board Consumer Confidence Index dropped from 102.9 to 96.4 in February, well below the 99.4 that the Wall Street geniuses were expecting.
That’s a bomb, but the real meat of the survey was the LABOR MARKET conditions.
Jobs Plentiful? 20.5% of Americans said that jobs are “plentiful.” Sounds good, right? Wrong! That’s a decrease from January, but more importantly, the number of Americans that described jobs as “hard to get” jumped from 24.6% to 26.2% in the last month.
Jobs plentiful declined; jobs hard to get increased.
Income Expectations? 15.1% of the households surveyed said that they expected their incomes to rise over the next six months. Sounds good, right? Wrong! That’s a decline from the 19.5% in January, AND another 12.0% said their incomes will decline over the next six months… up from 10.8% in January.
Expected income to increase declined; expected income to decrease grew.
The big mistake that Wall Street and most optimistic investors are making is they assume that an improving labor market will translate into strong consumer spending, the main driver (70%) of US economic activity.
What drives consumer spending is rising real wages, not a drop in the unemployment rate, and that is why Americans are becoming more pessimistic.
The stock market is NOT the economy, and the disconnect between Main Street and Wall Street won’t last forever. You can read about the biggest challenge facing Wall Street in 2015—brought on by the stronger dollar—by clicking here. Main Street certainly isn’t prepared for this…
Do you have a plan for when Humpty Dumpty takes a big fall?