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Comment by chrisco255 | Hacker News Reader

From Friday's jobs report:

KEY POINTS Nonfarm payrolls rose 224,000 in June, well above market expectations of 165,000, according to the Labor Department.

The unemployment rate edged higher to 3.7% but was still near 50-year lows.

Wage growth was 3.1% year over year, one-tenth of a point below market expectations.

Professional and business services led the job gains with 51,000, while health care added 35,000 and transportation and warehousing contributed another 24,000. Construction also added 21,000 and manufacturing, despite teetering on contraction recently, saw another 17,000 jobs added, above the 8,000 per month average in 2019 and getting closer to the 22,000 a month in 2018.

https://www.cnbc.com/2019/07/05/jobs-report-june-2019.html

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What do you conclude from this? That the economy is booming? That a recession or financial crisis is unlikely?

What does an unemployment rate of 3.7% mean when the labor force participation rate fell off a cliff in 2009 and has never recovered?

https://fred.stlouisfed.org/series/CIVPART

What does it mean when long-term government debt in Europe and Japan has a negative yield, or short-term debt in the US yields more than long-term debt, or defaults on mortgages and consumer loans are increasing?

If the economy is booming, what does it mean when there's incredible pressure on the Federal Reserve to reduce interest rates that are already historically low?

If the economy is healthy, what does it mean when the government runs record-setting deficits and piles up more trillions in unpayable debt?

Shouldn't we pay off debt during the boom, so we have something left in the tank for the bust?

Defaults on mortgages and consumer loans are increasing. We see trade war, actual war, mass migration, splintering nations, evaporating civil society, ineffective institutions and levels of inequality not seen in generations.

These are signs of deep dysfunction with no obvious solutions. Governments, banks and corporations have few tools to deal with crisis when it happens.

What exactly does a 3.7% unemployment rate mean in this context?

Labor force participation rate is steady at ~63%, which is only 4 points lower than all time highs and significantly higher than any time in the 1950s, 60s, 70s, and most of the 80s. With demographic trends, that's not to be unexpected.

Default rates on loans have been falling so not sure where you're getting your data: https://www.corelogic.com/blog/2019/01/mortgage-delinquency-...

I am concerned about the national debt but expanding the economy is one of the best ways to deal with it.

The trade war with China is a risk factor but not clear whether it's good or bad at this point.

There are always signs of dysfunction if you look for it. In this context, 3.7% unemployment and 3+% wage growth is good news for U.S. economy.

Okay, that's a data point. Let's flesh it out.

First, it has to be pointed out that the unemployment rate is always at its nadir directly before the market peaks. So good job numbers only mean that the recession hasn't arrived yet, not that we haven't passed an inflection point where a recession is right around the corner. You could imagine a chart that looks like half of a parabola, where present day is right before the minimum. I made a terrible mspaint diagram to make this clearer:

https://i.imgur.com/pYiMfUt.png

But also, there are major problems with even the data's ability to describe the current situation. For one, the jobs numbers regularly need to be restated as additional data comes in. It's not unusual at the start of a contraction in the business cycle for data from many months earlier to be revised sharply downward, revealing that the drop actually began sooner than anyone realized. For this reason jobs numbers are an extremely lagging indicator, with very limited value for predicting the future.

Second, the "unemployment" number has a very particular definition which is more subtle than you think. It excludes people who are no longer looking for work. Fortunately, the government tracks statistics on the total proportion of the population currently working, and the dramatic declines in the headline unemployment number (10% to 4%!) look less impressive when plotted against the relatively minor change in the actual employment-population ratio. Notice the difference in the scales of the left and right Y-axes:

https://i.imgur.com/wIjfVWo.png

You can play with the charting settings to get an even more vivid picture of just how little things are really improving:

https://i.imgur.com/mq1H8kD.png

The unemployment number plummets because people have given up finding work. The idea that the labor market is tight and drawing in formerly unemployed people to the labor force is exactly backwards.

That’s why they’re called bubbles. Everything looks great until they burst. And you’ll likely only retroactively see why.

This is all fine, and bubbles do pop. But look at the DJIA, nearly every point looking back looks like a bubble. So if bubbles pop do they drop to zero? Or can we say that while the highs we see today may drop compared to where they are now, that we have continued to move the average in the right direction?

My second point is, it is also hard to tell if you are not in a bubble, and you won't know until retroactively you see why.

You really should plot it on a log scale when you look back. And the Dow is interesting because it's been around so long, but it's a really bad index. It's cost-weighted, probably the most naïve way to weight an index.

The only sector that doesn't seem to be doing well right now is the agricultural sector but it's only 1.3% of employment compared to like 30% in 1929, so I'm not too concerned, the stock market seems grossly overvalued - this does concern me.

This isn't what a bubble looks like. Service workers aren't asking if they should by bitcoin or some random tech stock in 1998. In 1998, I remember tech stocks regularly going up percents per day. Or cable TV shows in 2007 about flipping houses. There's a lack of general mania.

Are thing's overpriced? Maybe, but we've gotten to used to saying everything's a bubble.

Not sure what bubble original commenter was referring, but would you not agree that the past couple years' hysteria over AI and ML suggests that the tech sector, at least, is experiencing a bubble? I don't think it'll be an extremely dangerous bubble because most of the cash being thrown at these startups is out of the pockets of risky VC funds rather than your Lehmann Brothers savings account, but it's still a bubble.

Deficit spending helps with all of those numbers. But it can't grow forever.

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