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This is an update to a post I did several years ago.

September 23, 2011
An Employment Trend that Has Not Failed





In hindsight, it has not been easy.

The following chart shows the natural log of financial activities employment divided by manufacturing employment. When using logs, constant exponential growth is seen as a straight line.


Click to enlarge.

This trend is in serious danger of failing. We're at the very bottom of the channel again. We last saw this heading into the dotcom bust. Before that we were heading into several recessions in the late 1970s. We also saw it as we were putting a man on the moon in 1969. Have we colonized the moon yet thanks to our ever growing prosperity? Or are we planning to put that off a few more years?

Do not lose hope. When Mr. FIRE Economy was asked about his recent under-performance relative to manufacturing (relative to the long-term trend) he exclaimed, "Give me recession or give me death!" To which Mr. Manufacturing Economy laughed with great hubris, "Don't be silly! Our new and improved Fed has permanently put an end to all recessions! It's common knowledge. Everyone knows it. It really is different this time!"

In all seriousness, note that the ratio tends to rise most during recessions as manufacturing employment plummets more than financial activities employment. Being at the very bottom of the channel therefore puts us in "great" position for another legendary rise in the ratio. If the trend holds over the long-term (think fully automated manufacturing employment), then it is only a matter of time.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows annual nonstore retail sales as a fraction of total retail sales (excluding food services).


Click to enlarge.

The growth trend is extrapolated out to 2050. I'm simply showing what the future will look like if the current trend continues. If 10% causes shopping mall pain now (which it clearly does), then what would 20% do in just 17 more years? Or 40% just 17 years after that?

A 4.2% growth rate means that the thing growing doubles every 17 years. In this case, that thing is shopping mall pain.

If you get stung by a bee and every 17 seconds you get stung by twice as many, how many minutes will it take before you realize that you're standing on a bee hive? How's that for optimism?

The following chart shows retail employees as a fraction of all nonfarm employees.


Click to enlarge.

Although there has been recent illusionary relative strength brought on by misplaced faith in the Fed to heal all that ails us, I fully expect the downward trend in red to continue. Further, I do not expect the blue trend line to offer any meaningful support to halt the decline.

February 26, 2013
The Death of the American Mall and the Rebirth of Public Space


Our older less prosperous economy is divesting itself of older less prosperous malls? Shocking.



Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

The following chart shows industrial capacity per capita (industrial production index adjusted for capacity utilization and population).


Click to enlarge.

That's a 0.998 correlation over 27 years of data (Jan 1967 to Jan 1994). And then... Boom! Trend broken big time. That has to be one of the most impressive trend failures I've ever posted on this blog. It was so incredibly consistent and predictable right up until it wasn't.

It's not where we've been but where we are headed that concerns me most. Now that we have all this extra capacity, what's the worst that could happen from here?


File:Abandoned Packard Automobile Factory Detroit 200.jpg (Albert duce)

It's not just us.

February 17, 2014
China Crackdown Drives Business Off the Books


February 10, 2014
Guest post: dealing with 500m tonnes of global steel overcapacity


January 27, 2014
China’s Aluminum Overcapacity Seen by Fitch Holding Down Prices


January 23, 2014
PetroChina delays operation of refineries on overcapacity

December 11, 2013
Overcapacity Threatens China Growth


I have never been more permabearish.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the annual average of the Dow Jones Industrial Average adjusted for inflation (December 2013 dollars). It does not account for dividends (which over the long-term can be very important clearly).


Click to enlarge.

This is not 1982. We know this because the Dow Jones Industrial Average is not trading at roughly 1916 levels (adjusted for inflation).

I'm just pointing it out for those who truly believe that this is 1982 and that a whole new era of American prosperity will soon be unleashed. That said, something may soon be unleashed (again). 1999 and 2007 weren't enough warnings?

It is yet another ugly chart, but what's new? As a retiree, I'm generally a risk-off kind of guy, and that's got risk written all over it.

1. Profit margins will stay permanently elevated?
2. ZIRP is guaranteed to work long-term?
3. The business cycle is dead so it's nothing but up from here?
4. There aren't any itchy trigger fingers hovering over sell buttons?
5. The Fed knows exactly what it is doing?
6. We can continue to borrow our way to prosperity forever?
7. America can never have too many restaurants?
8. The rise in Internet commerce won't hurt malls irreparably?


It takes a great deal of faith and/or hubris to answer a resounding "yes" to all those questions. I don't have enough faith to answer yes to any of them.

This is not investment advice, but damn. Surely there were better times in all of recorded history to put money to work in the stock market.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the annual change in manufacturing employees. I'm using semiannual data to filter out some of the noise.


Click to enlarge.

How can people be optimistic about the future of long-term employment when looking at that chart? Is it because they are looking at the following chart instead (and cherry picking just the good stuff)?



Cherry Picked Goodness

1. The growth rate is still positive! Hurray!
2. It's different this time! Woohoo!
3. Thanks to the Fed, recessions are now impossible!
4. We've lost more than 5 million manufacturing jobs since 2000. 12 million to go.

Can't you see that we're being Khan'd?

He is intelligent, but not experienced. His pattern indicates two-dimensional thinking. - Spock, The Wrath of Khan (1982)

One-dimensional thinking: The growth rate is still positive.
Two-dimensional thinking: The growth rate is positive but slowing.
Three-dimensional thinking: Somethin's poppin' and it ain't popcorn.

This is not investment advice. As always, just opinions.

Source Data:
St. Louis Fed: Manufacturing Employment Growth
St. Louis Fed: All Employees: Manufacturing

Click to enlarge.

The data in blue shows the annual inflation adjusted rail transportation corporate profits after tax (left scale, billions of December 2013 dollars).

The data in black shows the number of rail transportation employees (right scale, thousands).

It's almost like each additional boxcar on a train does not require an additional worker.



July 24, 2013
Forget the Google Car. The Future is Robotic Trucks.


Source Data:
St. Louis Fed: Custom Chart

The following chart shows the inverse of manufacturing employment.


Click to enlarge.

Yes! The Ultimate Super Bowl! That's what I'm talking about.

Did you really think that I was going to post something about the Seahawks just because I live in the Seattle area? I'm not even going to dignify that question with a long response.


And um, well, go manufacturing employment too I guess. Yeah, that's right. I'm sure that the long-term trend in the chart is finally reversing. Sure. Why not? Humans are finally winning over robots. Who couldn't see that one coming? Just look at the trend since the end of the Great Recession. The inverse is finally falling. It's clearly sustainable and we should therefore expect everyone to be working in manufacturing within the next few years. Oh, sure. It might be starting to curve upwards again but that's just something a pessimist might say. This is not a day for pessimism! Go Seahawks!

If you eliminate the impossible, whatever remains, however improbable, must be the truth. - Spock

It is common knowledge that the Fed has permanently put a stop to recessions. As seen in the chart, the inverse generally only starts to climb higher during recessions. That leaves us with the improbable. Right? The inverse is therefore not attempting to climb higher! It's all just a figment of our imaginations! Someone back me up on this. This is Puget Sound logical thinking at its finest. Did I say Puget Sound? Oops. Freudian slip! Go Seahawks!

Yes, yes. I'm filled with a renewed sense of irrational truth-seeking optimism and absolute faith in all officials! If everyone says the Fed won't allow another fumble gone bad, then who am I to argue differently? ;)

And lastly, I just have to say one more thing to be absolutely clear here.

Go Seahawks! :)

Source Data:
St. Louis Fed: Custom Chart

January 16, 2014
Time: How Amazon Crushed the Union Movement


On the one hand, this is absolutely shocking. Who would have guessed that high-paid white-collar employees invariably earn more than low-paid blue-collar employees? Time hasn't shocked me this much since they declared my snowboard to be a fad in the 1980s. I believe it was doomed to go the way of the hula hoop if memory serves. Oh how I laughed over that one at the time.


On the other hand, that would definitely suck (pardon my language). I've walked a lot of miles in recent years and anything over 7 miles is risking a blister or two. I can't imagine doing it every day. The thought of an ambulance waiting for me after a long shift is icing on the cake. I can definitely empathize with the frustration.

Look at the Tesla factory - what's the worker to robotic arm ratio in that factory? - polarbear429 (in the comments)

And on that third hand, the more the poorest among us are paid the sooner their jobs will be replaced by automation. Talk about a lose-lose situation for the workers. There is no backup plan once the jobs are permanently gone either, other than to pretend they will all miraculously find work elsewhere. As a side note, the more Amazon and other automated online retailers sell, the less brick and mortar retailers can sell. There are potentially 15 million retail jobs at stake here, and when they go they will no doubt take others with them. Sigh.



This post inspired by Fritz_O who pointed out (in the comments found here) that the Amazon workers opted not to unionize.