But is it “slowing” or is it just “normalizing?”   It’s hard to tell for sure at this point.

Yesterday, on October 1^st, the US Bureau of Labor Statistics released its “Job Openings and Labor Turnover Survey,” commonly called the JOLTs survey, for August.   The survey results are generally a month behind.   Interestingly enough, the survey reflected a small increase in ‘job openings’ from the prior month:   Openings increase to about 8.0 million from 7.7 million in July.    New hires dipped slightly, too, from 5.4 million to 5.3.  ‘Layoffs’ actually dipped by about 100,000.   That’s good news.   Overall, there’s nothing newsworthy here except to say not much changed month-over-month.  

So why is the FED so concerned about the labor and employment situation? 

Welcome to this week’s Steak House Index update.

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting? Expanding ….  By the end of Q2, 2024, in ‘current-dollar‘ terms, US annual economic output rose to an annualized rate of $28.63 trillion.   After enduring the fastest FED rate hike in over 40 years, America’s current-dollar GDP still increased at an annualized rate of 4.8% during the fourth quarter of 2023.  Even the ‘real’ GDP growth rate was strong … clocking in at the annual rate of 3.3% during Q4.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2023.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 70% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

The objective of this blog is singular.

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

The Blog:

The FED is right to be concerned.  

The American labor market is huge, and if new job creation slows too much, it will be hard to turn it around.   Over time, a lackluster labor market would have a seriously adverse effect on GDP. 

A picture is worth a thousand words.   Take a look at this one:

The pandemic response pushed a bunch of people out of the labor force.   Within months By April of 2020, America had 4.3 unemployed people per available job – up from just 0.93 unemployed folks per available job just 2 months prior.   I think we all remember the pandemic beginning and this horrible outcome.   But as of July of 2024, after bottoming in April of 2022 at 0.44, the number is just about back to the same level as February of 2020.   In other words, we’ve come full circle.  

However, what we’ve all probably forgotten – and for good reason:  Covid kicked us all in the head – is the fact that the employment picture was far worse in the years following the Great Recession of 2008.   Take another look at the chart.   In December of 2009, the number of unemployed folks per open job peaked at 6.8.   I know we all feel the pandemic experience was the most cataclysmic experience in almost a century.   But not from an employment perspective.   Again, the chart tells the story:    For the 18 months between December of ‘09 and March of 2011, there were more unemployed people per open job than the pandemic response created.   Again, take another look at the chart:   For almost 10 years, America had more unemployed people than jobs available. 

I believe this is why the US economy grew at a somewhat anemic rate during the 2010s.   A lot of people were not working.   Working people make money.   Working people spend money.   Unemployed people do not.   In October of 2009, the US unemployment rate was 10%.   Amazing, right?  

By March of 2011 – the date mentioned above – that rate had fallen to 9%.   The unemployment rate didn’t even hit the 5% mark until October of 2015.   No, clearly, the 2010s was a harsh decade for the labor force.

Ironically, our US GDP growth rate wasn’t all that bad during much of the 2010s.  It saw some low valleys, but there we some fairly high peaks.  After bottoming in Q3, 2011 at a paltry 0.94% ‘real’ growth rate, by Q1 of 2015 the growth rate hit a high-water mark of just under 4%.  And remember:  This is a ‘real’ growth rate – the ‘current-dollar’ rate was closer to 6%.  

What’s my point with all this number soup?   Precisely this:  At the end of Q1, 2015 – when GDP growth reached almost 4% – the American labor force measured 157 million people.  5.4% of them were unemployed.   By August of 2024, the labor force had grown to 168.5 million people and 4.2% were unemployed.   Said another way, in August of 2024, American had 10.7 million more people working than during Q1, 2015.  

And that works out to about $650 billion more in annual compensation.   Today, Americans are earning about $650 billion more each year than they earned in 2015.   Franklin was wrong:   A penny earned is not a penny saved.  It’s a penny spent.   And it is spent more than once it turns out.   The ‘multiplier effect,’ depending on who you ask, suggests $1 spent by a consumer generates about $5 of overall economic activity.   This is a rough estimate.    Regardless, $650 billion of additional payroll earnings likely creates many trillions of additional annual GDP, folks. 

Which is why the economy is doing so well today.  However, if layoffs and unemployment rates increase, the reverse is true.   The multiplier effect works in reverse.   This is precisely why the FED cut rates by 50 bps.  And why they will likely cut one or two times in coming months.

America’s economic health is very dependent on a productive, fully-employed labor force.   I’m pleased the FED shares my opinion.   Sweat the labor market, I say.   A healthy labor market is critically important for so many reasons.  

Let’s check in with the steak houses. 

Well, there’s not to much new here.   Sure, the SHI10 dipped back into the red this week … but not by much, and the decline is not statistically significant. 

All in all, I’m pleased with our economic resilience thus far.   The FED is finally cutting rates after 2.5 years of hikes and abnormally high interest rates.   Rate cuts will help ensure continuity in our economic expansion.  

Are we going to have that “soft landing” everyone’s been talking about for a year or more?   No, I don’t think so.   To my eyes, there is no landing at all.   The US economy is cooking!

<>  Terry Liebman