The guest commentary below was written by written by Daniel Lacalle. This piece does not necessarily reflect the opinions of Hedgeye.
The United States December jobs report shows that the labor market remains weak.
The headline 3.9% unemployment rate looks positive, but job creation fell significantly below consensus, at 199,000 in December versus a consensus estimate of 450,000.
The weak jobs figure should be viewed in the context of the largest stimulus plan in recent history. With massive monetary and fiscal support and a government deficit of $2.77 trillion, the second highest on record, job creation falls significantly short of previous recoveries and the employment situation is significantly worse than it was in 2019.
The most alarming data point is that real wages are plummeting. Average hourly earnings have risen 4.7% in 2021, but inflation is 6.8%, sending real wages to negative territory and the worst reading since 2011.
The number of persons not in the labor force who currently want a job did not change in December, at 5.7 million. This is still 717,000 higher than in February 2020.
The number of long-term unemployed (those jobless for 27 weeks or more) remains at two million in December, or 887,000 higher than in February 2020. Long-term unemployed accounted for 31.7 percent of unemployed, according to the Bureau of Labor Statistics.
The labor force participation rate remains at 61.9 percent in December and has been stagnant for almost twelve months. Labor participation remains 1.5 percentage points lower than in February 2020.
Finally, the employment-to-population ratio is just 59.5 percent, or 1.7 percentage points below the February 2020 level.
Now put this in the context of a massive three trillion-dollar stimulus and the evidence is clear. There is no bang-on-the-buck from this unprecedented spending spree.
All the jobs recovery comes from the re-opening. The stimulus plan has not accelerated job growth, it has slowed it.
A few months ago I had a conversation with Judy Shelton, one of the top economists in the United States, and she mentioned that the recovery would be stronger without this stimulus plan, and she has been proven right.
No US citizen should be happy about plummeting real wages and stagnant labor participation in the middle of a strong recovery and the second-largest deficit on record.
The unprecedented figure of resignations is not a positive. It is the evidence of a broken labor market where hundreds of thousands of Americans cannot afford to go to work because the costs outweigh their salary. This is not a signal of strong employment; it is a signal of a genuinely concerning side effect of inflation.
The United States is not even close to full employment. Erasing people from the unemployment lists is not full employment.
There is a clear threat to American workers from persistent high inflation and the higher taxes that the massive deficit includes. The destruction of the middle class and fewer job opportunities in the future as small and medium enterprises, the largest employers in the United States, suffer rising input prices and weaker margins.
The United States will not have a strong job market unless it recovers the trend of rising real wages and increasing labor participation rate that existed in 2018-2019. Everything else is just a poor and unproductive bounce.
This is a Hedgeye Guest Contributor note by economist Daniel Lacalle. He previously worked at PIMCO and was a portfolio manager at Ecofin Global Oil & Gas Fund and Citadel. Lacalle is CIO of Tressis Gestion and author of Life In The Financial Markets, The Energy World Is Flat and the most recent Escape from the Central Bank Trap. This piece does not necessarily reflect the opinions of Hedgeye.