by Bob Stokes
Updated: May 09, 2016
If you want to know what deflation can do to jobs, look at the oil industry. These are just a sample of headlines from the past year:
Roughly half of U.S. oil workers have lost their jobs since oil prices began a dramatic decline in June 2014, according to The New York Times (April 29).
As you probably know, U.S. crude prices have rebounded since a Feb. 10 low of $27.27 a barrel. No market goes straight down without countertrend rallies. But, as mentioned, significant job loss has already occurred. Imagine if a similar reversal of fortune occurred in many other industries simultaneously. That's what can be expected during a deep economic deflation.
The May 6 U.S. jobs report shows that the labor market has already started to soften.
U.S. companies slowed the pace of hiring in April …. The share of Americans participating in the labor force dipped after earlier signs of stabilization.
The Wall Street Journal, May 6
In April, the labor force contracted by 362,000. The retail sector shed 31,000 jobs. Government employment dropped by 11,000 jobs. And 20,000 jobs have been lost in manufacturing during the past year.
There was jobs growth in the services sector. For example, financial institutions added 20,000 to their payrolls.
We see the years-long trend of more services jobs and fewer manufacturing jobs as a recipe for disaster.
The January 2012 Elliott Wave Theorist called attention to this trend:
Jobs expanded in the area of services, especially financial services ….
But an economy can’t live on services. If no one produced goods and everyone just wanted to provide services to each other, everyone would be dead.
In February 2015, the Theorist had this chart and said:
In 1979, the U.S. was a world leader in manufacturing. Manufacturing jobs began slipping then, but they held up near lower peaks through 2000. Then they plummeted. So far, the latest recovery is the weakest percentage retracement on the chart.
The persistent weakness in manufacturing supports the case that the slow-growth economy will slow even further.
Moreover, we expect a dramatic decline in financial services employment. The job losses could rival those in the oil industry.