The Great Illusion: Why the Economic Headlines Don’t Reflect the Real America

by FX Hedge

There have been lots of questions lately about the extreme disconnect between the always-positive economic data in the business headlines and the absolutely horrific polling on the economy, so we’re here to clear things up.

The latest jobs report that just dropped from the Bureau of Liars and Scumbags Labor Statistics (BLS) offers a great explainer.

These “official” numbers show a 275,000 increase in payrolls for the month of February, which sounds terrific. Until you look at the revisions, a topic we’ve highlighted in previous posts.

Because December and January were revised downward so heavily (so much for January’s “blockbuster” numbers), over 60 percent of the payrolls added in February were jobs we thought the economy already had.

That’s been the case for 12 of the last 14 months – which is a pretty neat trick when you think about it: the economy keeps adding jobs in the news headlines without actually having to employ more people.

So, if you’re one of the millions of downward revisions, you don’t feel too hot about this economy right now.

But these figures all come from the establishment survey, which is only half of the jobs report. The other half is the household survey, from which we get metrics like the unemployment rate.

That means the household survey has its own measurement of employment too, and—as you can imagine—it’s terrible.

How bad? It showed a decrease in employment of 184,000 for February.

 
While these two surveys are tightly correlated over time, they have recently diverged to an unprecedented degree. It’s been unclear for a while now whether the economy is genuinely employing more people.

For example, the household survey shows employment is at the same level as it was in April of last year.

That’s not to say you can’t get a job today, but that the jobs are almost all pretty lousy. In fact, the net job growth is all coming from placing like McDonald’s.

To be clear, there’s nothing wrong starting your career with entry-level work at a fast-food chain. It wasn’t that long ago that 9 out of 10 Americans with a job had worked for McDonald’s at one point in their careers.

That stat was even true among C-suite executives.

The problem today is that people are turning to McJobs at every point in their career. Hence, the economy is currently adding relatively low-paying part-time jobs but hemorrhaging full-time ones. In February, part-time jobs rose 51,000 compared to January, but full-time jobs plummeted 187,000.

 
This isn’t a one-off occurrence, but the continuation of a trend which has recently accelerated. In the last three months, full-time jobs fell by 1.9 million. That’s the largest three-month drop since the Global Financial Crisis if you exclude the government-imposed lockdowns in 2020.

Since June of last year, the economy shed 1.8 million full-time jobs, replacing them with 1.7 million part-time ones. The number of full-time jobs is now roughly unchanged since March 2022, rising an anemic 0.3 percent, meaning there’s been essentially no progress in two years.

All the job growth in about the last two years has been part-time, which is up nearly 2 million.

 
“But why, oh wise sages at FXHedgers, are middle-aged folks already two decades into their careers and getting a McJob in addition to their full-time work?” we hear you say.

It’s the deteriorating state of American families’ finances. Throw that into the mix and you get a much more nuanced story about the labor market than the business headlines are proclaiming.

With 60 percent of Americans living paycheck to paycheck amid a cost-of-living crisis, people have turned to credit cards just to make ends meet. As families loaded up their charge accounts with necessities like rent, gas, and groceries, outstanding balances exploded to over $1.1 trillion with annual interest charges of over $240 billion.

Being so strapped financially has led countless Americans to get a second, or even third, job. The number of Americans with second jobs increased by 1.6 million in the last three years, and that doesn’t include those who had to take on a third job.

So, the McJobs are piling up because people have been forced to supplement their incomes, which drives up the headline job number each month because it double counts individuals with multiple jobs.

Thus, the rising number of payrolls at businesses has become more a sign of impoverishment than a sign of wealth.

That helps explain why the president’s approval rating on the economy remains so low even as the monthly job reports continue garnering such glowing media coverage.

Then there’s the unemployment rate. Because millions of people left the workforce in 2020 and never returned, they’re no longer counted as unemployed, even though they don’t have jobs.

 
Several million of these people have gone on disability, exploding the welfare rolls, a good indicator that they’ll never come back to workforce. Accounting for those folks missing from the labor force—and the unemployment rate calculation—means that the true unemployment rate is not 3.9% but somewhere between 6.5% and 7.7%.

Again, if you’re one of the Americans not being counted, maybe because you’ve given up finding a job that pays more than welfare, you’re none too pleased with how the government is mismanaging the economy.

 
However, one additional detail about the labor market may be an even better explanation for the phenomenon of terrible polling data and “great” economic data.

It turns out that native-born Americans have been completely left behind in the so-called economy growth of the last four years.

Employment for native-born workers is not only millions below its pre-pandemic trend, but it’s even 1 million jobs below the pre-pandemic level. Conversely, foreign-born employment returned to its pre-pandemic trend months ago and is 3.3 million above its pre-pandemic level.

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