White Anger: Fed Helped Elect Trump; Tale of Two Job Markets

Lakshman Achuthan and the ECRI posted some interesting charts about the uneven jobs recovery since 2007.

by Mish

Minorities fared far better at job gains on a percentage basis than whites.

The ECRI’s charts provide yet another look at why Trump won the election.

Please consider A Tale of Two Job Markets.

Looking beneath the headlines, it is important to appreciate how unevenly distributed the job gains have been during the current business cycle. We pointed out nearly five years ago that, over the first two years of the jobs recovery, Whites accounted for less than 59% of the job gains, even though they made up over 81% of the labor force. Meanwhile, Blacks and Hispanics, who made up “about a quarter of the labor force, accounted for around five out of every eight jobs added” (USCO, February 2012).
Last month, we again emphasized the skewed nature of this jobs recovery, noting that, “for seven long years, the majority of less-educated non-Hispanic White adults has not been employed. No wonder there is such angst in the lead-up to this presidential election” (USCO Essentials, October 2016).

A striking picture of this lopsided reality is evident from the shares of the total job gains since the November 2007 pre-recession peak in employment. As the chart shows, of the five-million-plus net jobs added since that high-water mark nine years ago, some 56% went to Hispanics (rightmost green bar), about quadruple their 14% share of the labor force at the time (rightmost blue bar). Meanwhile, 29% of those job gains went to Asians, i.e., about six times their 5% share of the labor force (second set of bars from left). Moreover, 25% of those job gains went to Blacks, i.e., more than double their 11% share of the labor force (third set of bars from left).
In sharp contrast, Whites, who made up over 81% of the labor force in 2007 (leftmost blue bar) accounted for negative 9% of the net job gains (red bar). While the percentage shares for these four groups add up to more than 100% because White Hispanics are double-counted as both White and Hispanic, and Black Hispanics are double-counted as both Black and Hispanic, the reality is stark. Whites actually have fewer jobs than nine years ago, while Hispanics, Blacks and Asians together gained all of the net jobs added, and more.

Negative Real Interest Rates

The above charts echo what I said yesterday in a Decade of Negative Real Interest Rates: Who Benefited?.

Here are the key charts and commentary.

Decade of Negative Real Interest Rates

The above chart was created by taking the short-term treasury bill rate and subtracting the year-over-year rate of inflation as measured by the CPI.

A massive housing bubble formed in the first period real interest rates were negative. In the current prolonged period of negative rates, bubbles formed in the stock market and bond markets globally.

Median Household Income Growth

Doug Short notes: The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary interim peak (as in money illusion) of 27.2% six months later and the latest at 42%, a record high. The real median household income is now at -0.6% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.”

White Anger

The above charts explain “white anger” and why Trump won, precisely.

And despite the hoopla of Trump saving a thousand jobs here or there at Carrier and Ford, the loss of manufacturing jobs is structural.

Structural Issues

The decline in jobs is related to robots and rising productivity in general. It takes fewer and fewer people each year to build anything, anywhere.

Blaming NAFTA or China is a scapegoat. Productivity It isn’t going away. Rather, productivity is poised to accelerate.

Advances in autonomous vehicles ensures millions of long-haul truck driving jobs will vanish by the 2022-2024 timeframe. In addition, Uber has announced plans to make its cars driverless. When that happens, and it will millions more jobs will vanish.

For my latest self-driving roundup, please see “Otto” Self-Driving Truck Test on Ohio Roads this Week.

Extremely Deflationary Forces

Economists at the Fed, including Janet Yellen, keep worrying about the lack of productivity. Productivity will jump soon, and millions won’t like it when it happens.

Productivity is an inherently deflationary force: More goods and services are produced at lower and lower cost.

Productivity is a good thing. Prices should drop. The average Joe on the street welcomes lower prices. In fact, the average Joe on the street needs lower prices.

Fed Helped Elect Trump

In this light, the Fed’s fight against deflation is amazingly counterproductive. In fact, the Fed helped elect Trump.

In their attempts to fight routine consumer price deflation, central bankers create extremely destructive asset bubbles that eventually collapse, setting off what they should fear – asset bubble deflation.

The Bank of International Settlements (BIS), did a detailed study and agrees. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?

Mike “Mish” Shedlock