While Obama enjoys taking credit for the "strong" job growth in the US under his administration, the following chart courtesy of Deutsche Bank shows which jobs were created in the past two years. As DB prefaces it, here is what US job creation has looked like since the summer of 2014 "when oil prices started falling, the dollar started rising, and credit spreads started widening." The result: nearly 4.5 million services jobs created, virtually no new manufacturing jobs, while mining and logging has lost 207,000 jobs since peaking in September 2014 as a result of the sharp slowdown in the US shale industry.
Why is this a problem (aside from the fact that the service job growth is so linear as to be completely fabricated, of course)? Because as we showed in January, while 86% of total US employment is in the service industry and only 14% of US jobs are in manufacturing, more than two thirds, or 68%, of S&P earnings come from manufacturing industries.
Which helps to explain why this is happening:
While it is hoped that the economy can continue to expand on the back of the "service" sector alone, history – and corporate profits – suggest that "manufacturing" continues to play a much more important dynamic that it is given credit for. The decline in imports, surging inventories, and weak durable goods all show the economy is weaker than headlines, or the financial markets, currently suggest. And in fact, services are starting to follow.
As we have previously observed, while recessions are "needed," public opinion is generally quite simple in regard to recession: upswings are generally welcomed, recessions are to be avoided. The “Austrians” are however at odds with this general consensus — we regard recessions as healthy and necessary. Economic downturns only correct the aberrations and excesses of a boom. The benefits of recessions include:
- Sclerotic structures in the labor market are broken up and labor costs decline.
- Productivity and competitiveness increase.
- Misallocations are corrected and unprofitable investments abandoned, written off, or liquidated.
- Government mismanagement of the economy is exposed.
- Investors and entrepreneurs who were taking too great risks suffer losses and prices adjust to reflect consumer preferences.
- Recessions also allow a restructuring of production processes.
At the end of the corrective process, the foundation for a renewed upswing is more stable and healthy. We thus see deflationary corrections as a precondition for growth in prosperity that is sustainable in the long term. Ludwig von Mises understood this when he observed:
The return to monetary stability does not generate a crisis. It only brings to light the malinvestments and other mistakes that were made under the hallucination of the illusory prosperity created by the easy money.
However, in addition to leading to true temporary hardship for the malinvestment-affected areas of the economy, an economic recession in the near future would represent a harsh loss of face for central bankers. Their controversial monetary policy measures were justified as an appropriate means to nurse the economy back to health. That is, their efforts to end or avoid helpful recessions were claimed to contribute to the eagerly awaited self-sustaining recovery. Instead, by delaying the inevitable end to the business cycle, they merely assure that the next economic contraction will be all the more violent.
via http://ift.tt/1sZabHF Tyler Durden