January Jobs Report: Beyond the numbers

January’s Jobs report released Friday by the U.S. Labor Department gave a healthy surprise to those economists and bankers who had predicted a modest 164,000 non-farm payroll jobs, only to see a whopping 225,000, with both the unemployment rate, as well as average wages inching up, respectively to 3.6 and 3.1 percent.

This was good news for many and indicated that the American economy was steady if not spectacular, and showed no signs of  a crisis, but as with past reports over the last year showed wages to still be lowered than expected with a tight labor market, in defiance of all known economic standards.

Some observers feel that one group has benefited, namely those lower income people without college degrees, who are mostly employed in service jobs, and have seen an increase in pay, including those with criminal backgrounds, or minor convictions.

Politically speaking, a strong economy has been a boon to the reelection efforts of President Trump who has touted the economy as another reason to keep him in the White House.

Joined to the easing of Sino-American relations with the Phase I relief from the Chinese tariffs, coupled with the new NAFTA agreement with Canada and Mexico, Wall Street as well as Main Street feels a sense of relief.

Despite a tight labor market, for many American families, both middle-class and working, the lack of affordable housing and changes in tax benefits has become a backdrop to the headlines.

With increased urbanization, has come higher rental prices, with a market that has new construction turning toward high earning individuals and families, causing major American cities such as Chicago, but also others, as we will see, causing many lower earning people to spend at least 50% of their income on housing, with relatively little left over for basic expenditures, not to mention emergencies.

Taking a closer look at the joined realties of the labor market, the U.S. economy and other realities, as well as political, the picture is not as rosy as some might believe.

Political Headwinds

While Trump has touted the strong economy as a means to reelection there are some caveats. Between his administration and that of his predecessor Barack Obama, “perceptions about a healthy economy will not necessarily offer Mr Trump much more than a marginal boost,” reported The Economist in January.

As they noted, “Between 1960 and 2008, a one-percentage-point increase in the University of Michigan's index of consumer sentiment predicted a half-percentage point increase in the president’s approval rating.” And, that link was broken, they summarized, after Obama’s election.

Furthermore, Trump’s impeachment acquittal excepting, “According to  YouGov, Mr Trump's approval rating sagged from 43% to 40% between October and December 2019, even as families' financial situation improved.”

Hits and then some misses

What we have seen, as part of the bump, is a mild winter that helped in construction, as well and was consistent with what Grant Thornton economist Diane Swonk predicted, if there was an increase and as she told CNBC, ““I’m looking for 170,000. If we do get a big surprise, it will be weather.

Swonk said that could mean more construction workers than expected and more workers added in the leisure and hospitality sector.”

What went down was manufacturing that took a nosedive with their grounding of the 737 Max jets after notable crashes in 2019; events that also affected the global supply chain.

“Manufacturers cut 12,000 jobs, with most of the losses coming among automakers, and employment also dipped in the mining sector. Job growth in freight transportation was also weak, the latest evidence that the ripple effects of the trade war are continuing to spread,” reported The New York Times.

Wages as we have seen have been a tough slog for American workers, yet those jobs that have seen an increase have been through some, though not all employers using them as an incentive to hire, but many including Illinois low income workers, without degrees seeing wage more attributable to state increases, but not in Philadelphia where Pennsylvania state law does not allow for city increases.

There has been an increase in labor force participation, of 0.2 percent, with a current level of 63.4 percent, especially among women but as we noted last month these are often “pink collar jobs” that are on the lower economic rungs, and offer less stability, and opportunity for growth; all of which has been seen in the 20 percent increase in leisure and hospitality.

Gains are more for the employer than the employee with a bonus for the balance sheet, rather than the household budget.

Homeowners and renters in jeopardy

For homeowners the picture darkens with the end of the SALT deduction from the changes in the 2017 tax law, and as Fortune reported, last October, a loss of a trillion dollars, and ‘That massive number is the reduction in home values caused” by the “cap on federal deductions for state and local real estate and income taxes at $10,000 a year,” added This Week.

With a 4 percent decline in home prices, which result in “a 1.4 trillion setback for the nation’s homeowners,” said Moody’s chief economist Mark Zandi, citing the change from the Trump administration tax law.

For renters there is also a downside. With the demise of the refundable security deposit, and the increase in application, move in and pet fees as a general replacement, would be renters face dramatic cost increases, noted Don DeBat is his Chicagoland column.

“Application fees range from about $80 to $100 per renter, Non Refundable move-in fees start at about $350 and go to $500. Some landlords also charge “move-out” fees,” he said, all of which is a downward pull on January’s modest wage increase.

Add pets and a renter can see a “non-refundable pet deposit of $250 per dog and $150 per cat, plus a monthly “pet rent” of $25 per dog and $15 per cat,” DeBat added.

All of which is added to the lack of affordable housing for many across the nation as Market Watch recently reported.

“Being able to pay for housing — along with the rest of one’s everyday expenses — is a challenge for many Americans. And increasingly, that includes middle-income Americans.

A new report from the Joint Center for Housing Studies of Harvard University calculates that 10.9 million renters spent more than 50% of their income on housing in 2018. That equates to one in four renters. Moreover, there were 6 million more cost-burdened renters in 2018 than in 2001.”

Who is most affected? “The problem is much more predominant among lower-income Americans — 72% of renters earning less than $15,000 a year were severely burdened as of 2018, as were 43% of renters earning between $15,000 and $30, 000,” it noted.

As many have already discovered, “Nearly 56% of renters earning between $30,000 and $45,000 a year were cost-burdened as of 2018, up 5.4 percentage points from 2011. That was the largest increase in the share of cost-burdened renters across any income band in the country.”

Wages are still a problem

It all comes back to wages whose lack of gains compromise the increase of 225,000 jobs, and after a brief gain in 2018, that rapidly vanished, we are left with not only with an economic conundrum, but one with no signs of abatement.

While consumer confidence has remained high, most economists are wondering for how long, especially with the specter of layoffs and buyouts which are now common for the last several decades, but which were at least bolstered by higher wages; and what we have now are still far below pre-recession levels.

A weakened manufacturing base will eventually take its toll, and the easing of Chinese tariffs has been sidelined by the coronavirus which has caused shutdowns of many of their prime factories.

For African Americans, the picture is brighter and there has been an increase, and their unemployment is at historic low, but yet despite these gains there is a widespread gap; and, at median levels blacks make $0.78 cents to a white median worker’s wage of $1.00.

Those without a college degree face even harder struggles, in a market where that is seen as a baseline qualification.

As the report showed, white unemployment of 3.1 percent, with 6.0 percent for blacks.

For those that cheered the January numbers caution is called for, and for those that took a wider lens on the report, those that are not the 1 percent, the future economic outlook for the U.S. has not been called.