US Job Growth is Slower than Reported

The news media has been reporting steady job growth in the US economy since the Covid 19 crisis. Employment has grown steadily. However, data on employment represents progress in the number of jobs filled. The total number of jobs in business plans is the sum of all filled and unfilled jobs, total employees plus total job openings (see the red line in the top-left graph below).

The total number of jobs in the US economy increased rapidly up to March 2022. Total filled and unfilled jobs have fluctuated since March 2022, with little increase. Why have businesses been planning for relatively few new jobs? It appears that low businesses confidence has put a damper on business plans to create additional jobs. Growth of fixed nonresidential fixed investment peaked in the second quarter of 2021, at the same time that growth of business confidence peaked (see the top right graph below). Business confidence began to decline in the second quarter of 2022, by which time fixed nonresidential investment settled in at a lower growth rate. Businesses are still investing in capital, but we must remember that businesses need to do some capital investment just to replace old-depreciated equipment.

Changes in small business optimism have been significant (see the bottom graph). There was a large increase in small business optimism around November 2016. Small business optimism fell in 2021, and settled in a a low level since June of 2022. Relative lack of investment and planned job growth in the US likely will have serious long term consequences for our future wages and incomes.

The puzzling part of all of this is that business profits have been relatively high in the past few years. Why has business confidence fallen while profits are relatively high?

Entrepreneurs plan investment in new jobs based on expected economic conditions, not just on recent profits. Most US businesses have done well, financially, in the past few years, but the regulatory environment has changed. The Biden administration has imposed stricter regulations on businesses. We should consider the possibility that entrepreneurs fear losing effective control of their businesses, as the regulatory environment in the US becomes more strict and intrusive.

[Originally published at On the Other Hand...]