It’s The Supply Side, Stupid!

The most important number in the June jobs report was 37%, a figure which got no attention at all. However, it just happens to document that rather than a “hot” labor market per the Wall Street mantra, we have a very punk one, and, more importantly, one that is clearly beyond the ability of the Washington money-printers or fiscal spenders to do anything about.

We are referring to the June index number for aggregate weekly labor hours, which clocked in at 118.8 for the private sector labor market as a whole. That compared to a figure of 100.0 for the opening month of this century. Accordingly, the growth rate for the last 23.5 years has been just 0.74% per annum or only 37% of the 2.0% average for 1964 thru 1999.

Now, unlike the silly focus on month-over-month changes in the jobs headcount, which are pretty much noise and which usually get substantially revised away anyway, that drastic downshift in the long-term trend of total labor hours growth rate actually means something. Namely, that the supply-side of the US economy is faltering badly and that all of Washington’s bromides–easy money, massive public borrowing and spending, the green energy crusade, the ballooning Warfare State, border wars and walls and ever proliferating levels of free stuff and Welfare State inducements to non-work—are only making the situation worse.

Moreover, even the punk labor hours growth rate of just 0.74% per annum since January 2000 does not capture the whole story. That’s because even the feeble growth of hours since then has been heavily concentrated in the low-productivity, low value-added sectors of the US economy.

As shown in the chart below, labor hours in the high productivity goods-producing (yellow line) sectors—manufacturing, construction and energy/mining—- have actually shrunk during the course of this century, while service providing industries (red line) have experienced modest growth. Within the latter, moreover, health and education hours have grown at a relatively rapid clip because output is largely driven by government transfer payments, not price-sensitive private demand.

Per Annum Growth Rate Of Labor Hours By Sector, 2000-June 2023:

• Total Private Sector: +0.74%;

• Service-Providing: 1.11%;

• Goods-Providing: -0.74%;

• Education & Health Services: 2.21%;

Index of Labor Hours By Sector, 2000 to June 2023

Needless to say, the punk growth of overall labor hours (blue line)—even with a massive assist from government funded health & education (green line)—-is not due to an explosion of productivity. That is to say, America is not getting wealthier at its pre-2000 rate owing to technological innovation and capital substitution for labor—notwithstanding all of the Wall Street ballyhoo about high growth Silicon Valley and the supposed miracles of the digital revolution.