10 November 2015

The dark side of the data

The Bureau of Labor Statistics (BLS) in the United States showed a hike in its jobs report of 271,000 new hirings on Friday, despite attrition in the mining and oil & gas sectors.


This supposedly strong figure is predicating expectations that Yellen’s Federal Open Markets Committee will increase the Federal Funds rate in December. Yet the initial reaction from market credit spreads indicated some ambivalence as these rose rather than rallied, on what was prima facie bullish or good news for the economy; namely a supposed reaffirmation of a healing labour market. So what was amiss in these figures? Looking through the BLS statistics revealed a telling and gloomier picture than the headline rate revealed. Over 240,000 of the supposed new hirings related to those aged 55 or over. This implies an older demographic re-entering the workplace for structural reasons that are increasingly being recognised as part of a darker, more alarming social picture in the US. Many early retirees who had planned to live off their savings are being forced back into the labour market by the failure of their pension provision to support their lifestyles with interest rates on their savings accounts on all time lows. Many of this demographic lack the necessary IT and workplace skills to re-enter the workplace in anything other than a menial capacity. With global capacity from China to the US, and all its export markets in Emerging Markets, in over-supply, the hiatus in global growth is scarcely going to undergo a US driven productivity renaissance off such poor underlying data.

This backdrop augurs badly as the basis of the first rate hike since the Great Financial Crisis. The underlying issue of excess global capacity and productivity will not go away until capacity removal occurs and that requires a re-alignment or removal of excess capacity in China. Whilst it is a story for another day, China’s struggles with its investment glut will continue to dog the global economy and put downward pressure on the Chinese renminbi as it seeks to devalue and seek out international markets for its excess capacity. We are seeing the effects everyday of, say, steel exports being dumped with the UK closures at Redcar and Caparo Industries.

Death rate for U.S. non-Hispanic whites (USW, solid red line), U.S. Hispanics and six comparison countries, aged 45-54. Credit: Proceedings of the National Academy of Sciences.

A contemporaneous study by recent Nobel prize winner, Angus Deaton co-authored by his wife, Anne Case is causing alarm in US medical, governmental and media circles. He recently published findings that point to a demographic hike in the death rate for white middle aged Americans since 1999. With an intensity that has parallels with the first vicious findings of the HIV epidemic, Deaton’s work highlights a surge in the death rate by suicide, drug addiction, alcoholic poisoning and lung related diseases within the middle aged white population – this scenario is not being seen in the closely knit Hispanic community and is in fact declining within the historically deprived black community. Key causes of this sad trend, according to Paul Krugman of the New York Times, appear to be growing availability of opium substitute prescriptions, de-industrialisation in former smokestack industries and illiteracy in IT skills, making an older section of the community unemployable in the modern job market. A further vital factor is the stagnation of this age bracket’s pension provisio n since the Great Financial Crisis as Zero Interest Rate Policies (ZIRP) render the spending power of their accumulated pension provision virtually meaningless.

This swathe of poor unemployment, education and savings prospects would appear to be a depressing side effect of the Federal Reserve’s monetary response in recent years. Whilst Deaton’s findings are the subject of intense debate, the impoverishment of Quantitative Easing appears to be feeding through in these very sad statistics for middle aged white American males, the former life-blood of the US’s struggling industrial competitiveness. It is a notable feature of Democratic Party funding that this section of the US electorate receives barely any electioneering spending. In summary, the recent job report reflects the secular stagnation of the US economy since the Great Financial Crisis, both in its recent hiring patterns and in the depressing data coming off its mortality rate.


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