MEDIOCRE JOB GROWTH REPORTS BELIE MAJOR PROBLEMS AHEAD FOR US ECONOMY

The September job report (10/4 @8:30am) is expected to show 150,000 new (non farm) jobs and an unchanged 4.2% unemployment rate. These numbers are not overwhelming, but neither are they disastrous. Importantly, anything close (or even weaker) will be sufficient for the Federal Reserve to proceed with continued interest rate cuts. This is key to further market advancement.

But the jobs reports, thus far, in 2024 are not signaling the massive problems on the horizon. As a population, we are an old country and getting older. Moreover, we are not creating jobs like we used to and have resorted to outsourcing many jobs that we could keep “in house”. Further, we have lately resorted to a propensity to create “non productive” jobs to maintain employment. For example, over the past 5 years, the United States created 350,000 MORE jobs in government, social services and healthcare than overall total jobs created.

It should come as no surprise that the US has long since lost its competitive edge in manufacturing. However, our job growth is now dependent on aging baby boomers with many refusing to retire. This may be due to economic necessity or desire to keep active, but eventually, the issue becomes moot. Sooner or later they leave the workforce. Many individuals will no longer contribute wealth to our society and will become an added burden to limited support and services.

Surprisingly, in a close election year, marked by animus from one political party to the next, the economic news has taken a back seat to other issues deemed more worrisome. It shouldn’t. Current economic issues, the direction of job growth and the inevitable, irreversible decline in the US workforce, should take center stage. The next four years will be critical to the economic direction of the US economy. In the absence of a visionary change in direction, economic retooling, incentives and policy changes, our overall economy is headed for a vicious downward cycle.

There are some key fundamental demographics which are not going away. Ever. The US has an aging workforce with 75m baby boomers. Notably, by the year 2030 the number of Americans who are 65+ will exceed 20%, almost doubling the level in the year 2000. Each year, more than 4m Americans are eligible to retire. This will continue for the foreseeable future and have a profound impact on the size of the civilian labor force, the employed population ratio, and the unemployment rate. To place these numbers in perspective, one needs to understand that in the past 5 years, only 3m new jobs were created. There are currently 40m+ Americans who are 65-75 and in the next 6 years another 25m will join them. Approximately 1/3 of them work (up for 1/4 10 years ago). This implies that within the next 5 to 10 years, the US can expect 20m+ retirements. Given the current level of 161m employed Americans, on a civilian non institutional population base rate of 268m, the employed population ratio could plummet from 60% to 50%. In other words, in only 5 to 10 years, the US could be in a situation in which 1/2 the civilian non institutional population (above 16, non military, not in jail or nursing home) would not be working.

Compounding the problem is that the US has added to taken a leadership role in outsourcing talent—notably to Eastern Europe and India for technical IT support and Philippines and Viet Nam for bookkeeping and accounting support. Millions of jobs, both high and low wage jobs are being sent overseas.

Meanwhile, the job growth in the US has come from 3 key areas: HealthCare, Government, Social Assistance. In fact, over the past 20 years, 2/3 of the new jobs from these areas and in the past 5 years, more than 3.5m jobs were created in government, health care and social services than overall jobs!

Given the aging population, the trend in healthcare will clearly continue. Moreover, the demand for social services will likely also continue to rise as additional illegal immigrants enter the country.

Is there a solution to avoid this impending doom? Possibly, but we would need immediate corrective actions. Unfortunately, job growth, and in particular, long-term job creation has not received the attention that it requires. Minor tweaks are being made to extend retirement age among some workers from 65 to 67, but this does not address the larger issue that will happen within 5 to 10 years.

Policies need to be implemented to create economic incentives for companies to keep jobs in America and bring other jobs back home. Along these lines, tough policies regarding minimum wages need to be considered in the context of not forcing employers to shut down, move or outsource talent. America also needs to grow it’s educated work force, especially among young people. Simple solutions, such as keeping foreign college students in our country longer, might go a long way to helping resolve this developing crisis.

Finally, the US cannot continue to create jobs primarily in government, social services and health care. Jobs that help reduce global balance of payment deficits are required for long term economic growth. This cannot happen with governmental or social service jobs. As part of this action, governmental policy regarding the increased cost of millions of illegal aliens entering our cities needs to be addressed.

The forthcoming jobs reports for the next few months will likely continue without major surprise. But it is just a matter of time before baby boomer retirements kick in. At that point, it will become clearer that the US has major problems ahead. Hopefully, our future policy makers will make these issues a top priority. The growth of our economy and the future for our children depend on it.