When employment hit an air pocket in December, most analysts brushed off the dreadful jobs number as an anomaly, or a function of the weather. They chose to believe Ben Bernanke rather than their lying eyes. It’s hard to ignore a second signal that the U.S. economy is dead in the water, though: on Monday the Institute for Supply Management reported the steepest drop in manufacturing orders since December 1980:
In January, only 51% of manufacturers reported a rise in new orders, vs. 64% in December. Not only did the U.S. economy stop hiring in December, with just 74,000 workers added to payrolls; it stopped ordering new equipment. The drop in orders is something that only has occurred during recessions (denoted by the shaded blue portions of the chart). The Commerce Department earlier reported a sharp drop in December orders for durable goods. In current dollars, durable goods orders are unchanged from a year ago, which is to say they are lower after inflation.
This should be no surprise in retrospect, given two disastrous underlying trends. One is the decline of real median household income:
The other is the collapse of the labor force participation rate, which is the flip side of the coin: if fewer adults are working, median household income will be lower.
It’s even worse than it looks, because Americans who have jobs are working fewer hours.
Average hours worked are down 1% from pre-recession levels. That doesn’t seem like a lot, but it’s the equivalent of 1.4 million jobs in a labor force of 140 million. The U.S. has restored 2.5 million jobs since the financial crash, but adjusted for hours worked, it’s the equivalent of just 1.1 million jobs.