stronger job growth*: the recovery of discontent

7/23/2019 Stronger Job Growth*: The Recovery Of Discontent

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Stronger Job Growth*

Hamilton Place Strategieswww.hamiltonplacestrategies.com

202-822-1205

Matt McDonaldRuss GroteScott HaberNoah Reichblum

Findings:

While 2015 job

growth was abovethe average o recentrecoveries, it was ac-tually below averagei we adjust or labororce changes

This discrepancy maybe one reason why

people perceive theeconomy as worsethan statistics wouldindicate

For the presidentialelection, the incum-bent party shouldaim or 185,000 jobs

per month, with anaverage or reelectedparties at 310,000per month

This is the recovery ofdiscontent. We are in the

midst of one of the longestperiods of economic growth

in American history, and thejob market is close to fullemployment. The economyis now consistently creatinghundreds of thousands ofjobs per month. And yet

Two-thirds of Americansbelieve our country is onthe wrongtrack. Over

half describethe economyas bad. Eventhe Democrat-ic candidateslooking to suc-ceed PresidentBarack Obamatailor theirtalk about the

economy to agrumpy electorate and avoidpositioning themselves asa continuation of currentpolicies.

So what is actually going onin the economy and the jobmarket more specifically?How can we square improv-ing economic numbers with

lagging confidence by peo-ple really living in the econo-my day-to-day?

Two of the major drivingforces in the labor marketover the course of the re-covery and the past decadehave been shifting demo-graphics and changes in par-ticipation. We have seen theend of labor force growthdue to women entering the

labor force, andwe have seen

the beginningof the impactof baby boom-er retirements.At the sametime, we haveseen problemswith laborforce partici-pation due toskills mismatch

and other issues.

All of these dynamics are im-portant to think about as weanalyze the job market. Ad-justing jobs data to accountfor labor force shifts can helpshed some light on voterseconomic angst, even as wesee good headline statistics.

Adjusting jobs datato account or la-bor orce shifs canhelp shed some lighton voter economicangst, even as wesee good headlinestatistics.


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2015 actually hadlower than averagejob growth i we ad-just or the change in

the size o the labororce.

Fig. 1: Ater Adjusting Previous Expansions By The Size OThe Labor Force, Current Growth Is Less Impressive

Source: U.S. Bureau of Labor Statistics. Job numbers adjusted by December 2015 laborforce.

-400

-300

-200

-100

0

100

200

300

400

'09-'15

'01-'07

'01-'01

'91-'01

'90-'91

256,000jobs permonth

'82-'90

'07-'09

'81-'82

'80-'81

'80-'80

'75-'80

'73'75

'70

'73

AverageMonthlyJobGrowth(000)

Average Monthly Job Growth During Business Cycles

Adjustedaverageduringexpansions

Adjusted

Nominal

2Hamilton Place Strategies

Labor Force Adjusted JobGrowth

To understand how the re-cent upswing in job growthmight feel for the Americanworker, we need to put thegrowth in context. Workers

dont experience statistics;they feel market forces. Withdemographic changes, thestatistics today mean some-thing a little different thanthey meant in the past.

After all, adding 200,000 jobsin an economy of 80 millionworkers feels a lot different

than adding 200,000 jobs inan economy of 160 millionworkers. But we can scalehistorical job numbers bythe size of the workforcesuch that they are compara-ble to job numbers in 2015.The adjusted jobs data revealone reason why Americansarent popping champagneover the recent increase in

job growth.

During expansions from 1970to the present,the economygrew jobs by abit over 175,000per month. Thecurrent expan-sion has av-eraged belowthat rate. Sincejobs startedgrowing againin 2009, wehave averaged about 150,000per month.

In the past two years, thosenumbers have improved.We just got the job report

for December, and over thecourse of 2015, we saw jobgrowth average 221,000 permonth, a little below the rateof 2014, but above the aver-age rate of previous expan-sions. The problem is that

the workforcehas also ex-panded duringthe past sev-eral decades.If we adjustthe job growth

to account forthe increasednumber ofworkers, the

average job growth permonth during prior expan-sions since 1970 was actually256,000 per month.

Though 2015 was a good

year in terms of job growthduring the current recoveryand had higher-than-aver-age job growth as comparedto recent recoveries, 2015 ac-tually had lower-than-aver-age job growth if we adjustfor the change in the size ofthe labor force.

Workers who joined thelabor force after 1999 haveexperienced below-averagejob growth for 11 out of 16

years. And for workers whojoined the labor force before1999, the recent upswingin job growth pales in com-parison to earlier eras. Ev-ery other recovery in recentdecades had stronger adjust-ed job growth than the twomost recent recoveries (Fig.1).


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Fig. 2: Incumbent Parties With Better Pre-Election Job Growth See Better Odds O Victory

Note: Margin of victory defined between first-and-second place candidates.

Source: U.S. Bureau of Labor Statistics. Job numbers adjusted by December 2015 labor force.

-300

-200

-100

0

100

200

300

400

500

185,000jobs permonth

Monthly Average Job Growth Before An Election,Jan. Oct., Adjusted By Labor Force

Av

erageMonthlyJobGrowth(000

)

Target forincumbent

partyvictory

'92 '76 '68 '00 '60 '04 '12 '88 '96 '56 '84

'08

'64 '72

-5.5

-2.1

-0.7

-0.5

-0.2

2.4

3.9

7.7

8.5

15.4

18.2

-7.2

22.6

23.2

-9.8

'80

Marginofvictory

3Hamilton Place Strategies

Election Year Job Growth

If todays job numbers are

not impressive when com-pared to historical averages,what does this mean for the2016 election cycle?

When we look at the ad-justed data from the last 15presidential elections, notsurprisingly, high job num-bers are usually a harbingerof an incumbent party victo-

ry (Fig. 2).

These findings echo previ-ous studies on the relation-ship between job growthand election outcomes.While a single variable can-not completely predict anelection, and presidentialcampaigns are a limited data

set, job growth is one of thevariables that most closelyaligns with an incumbent

partys margin of victory.

Victorious incumbent par-ties have benefited from anabove-average310,000 jobsper month,while losing in-cumbents sawa below-aver-age 100,000

jobs per monthin labor-forceadjusted terms.

In terms of a bare minimum,modern incumbent partieshave never won an electionwith less than an adjustedaverage of 184,000 jobs permonth, though it was Presi-

dent Obama who achievedthat just four years ago. Theonly elections when an in-

cumbent party lost with jobgrowth above that level weredominated by Vietnam andWatergate.

To benefitfrom the econ-omy, Demo-crats shouldbe looking formonthly job

growth above185,000 permonth. This

wont guarantee victory forthe Democrats, and lowergrowth wont guaranteevictory for Republicans, butits a helpful benchmark toevaluate the monthly statis-tics during 2016. []

modern incumbentparties have neverwon an election withless than an adjustedaverage o 184,000jobs per month

stronger job growth*: the recovery of discontent

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