It will be bigger than the Big Dig. And its name is equally pithy. Opened in 1959, downtown Boston’s Central Artery was designed to handle daily vehicle traffic of 75,000. By the early 1990s, per diem volume had ballooned to more than 200,000, congesting the highway for more than 10 hours a day with four times the nation’s accident rate. According to NASA, the solution was, “Larger than the Panama Canal, the Hoover Dam, and the Alaska Pipeline projects,” with engineering firsts including, “the deepest underwater connection and the largest slurry-wall application in North America, unprecedented ground freezing, extensive deep-soil mixing programs to stabilize Boston’s soils, the world’s widest cable-stayed bridge, and the largest tunnel-ventilation system in the world.” Its original cost was estimated at $2.5 billion; in the end, $24.4 billion was expended, more even than the $21 billion that poured into the Channel Tunnel to connect Britain and France. And then, there’s the Ike Dike. Last September, the U.S. Army Corps of Engineers said that inflation had blown the cost of the biggest civil engineering project in U.S. history ever proposed to $57 billion from the originally estimated $34 billion.
Why would a Dike be named “Ike? Rather than a beloved former general and president, the colossal system of gates across the expanse of Galveston Bay to protect Houston from storm surges is named for Hurricane Ike, which barreled onshore as a Category II hurricane on September 10, 2008. The 3rd most costly, deadly, and destructive tropical cyclone in the past 30 years that it was, its manmade successor, which struck on September 15th, vanquished from memory any natural disaster of the era.
At last check, everyone is writing about the Ides of March. Are we at QI calendrically challenged? As we assured you, January’s initial Nonfarm Payroll print was plain off. How far off? That -124,000 print sure sounded large. Scrolling down the Bureau of Labor Statistics (BLS) “Nonfarm Payroll Employment (NFP): Revisions Between Over-the-Month Estimates, 1979-Present” tables, after cutting through the pandemic noise, I started to think I wasn’t ever going to ‘get there.’ And then there it was…a downward revision of 1,000 more, -125,000 in September 2008 (red bars), the month of the Ike Strike that Lehman’s collapse nearly erased from our memory banks. Sticking to that dark chapter, 12 of the 13 months through January 2009 saw negative revisions to NFP.
As for drawing parallels with the current episode, by last summer, negative revisions had become too conspicuous for comfort at the BLS. To contextualize, the decade ended 2019 saw mean monthly revisions of 16,000 jobs. And then came COVID, which forcibly closed and reopened the world’s largest economy — 2020 and 2021 saw mean monthly revisions of -60,000 and +159,000, respectively. The calm that followed in 2022, with its -6,000 mean monthly revision, was followed by the first major wave of layoff announcements. By June, the magnitude of the -54,000 monthly mean revision redefined poor optics at the BLS given how diametrically it opposed the “strong job market” narrative being touted. The tide needed turning as an Election Year fast approached.
QI friend Philippa Dunne has a database unlike any in the public purview which breaks down revisions’ composition (she started via manual documentation in the New York Public Library basement). In September 2023, she noted, “Revisions were large and positive, with July taken up by 79,000 and August by 40,000, for a combined total of 119,000. But more than all of that came from government, taken up by a combined 131,000, with almost all of that coming from education at both the state and local levels. Private employment was revised down by 10,000 in July and 2,000 in August, for a combined -12,000.” As is the case with Gross Domestic Product, we dismal scientists eagerly anticipate not one, but two revisions to GDP and NFP. That second revision of +79,000 to July 2023, more than all of which were government jobs, technically broke the negative revision run. The same could not be said of isolating prism private NFP.
Other post-recession signposts include Temporary Employment, which has sunk to 1.74% of NFP (yellow line). In December 2007, it was 1.84%, a level that was breached in July 2023. And then there are those who are unemployed but not collecting jobless benefits. At 7.8% YoY, the ranks of uninsured unemployed are growing at a rate that’s on par with recessions dating back to 1968 (green line).
No doubt, bubblevision will parade out Claudia Sahm to defuse rising anxiety. The unemployment rule named after her is, after all, 0.23 percentage points (pps) from being triggered (+0.5 pps on a 3-month-moving-average). Curiously enough, research undertaken years ago by then-Goldman Sachs economist Ed McKelvey showed that a 0.3 pps increase in the unemployment rate on the same 3MMA basis was equally unequivocal in signaling recession onset.
If you’re a Sahm Rule purist, at a minimum, the “soft landing” narrative is definitively dead. The full-time unemployment rate has bounced by 0.4% off its lows (lime line). In 1967 and 1995, two “soft” precedents, Federal Reserve tightening did not trigger recession. They’re no longer relevant to today’s discussion. What is applicable is the subject of inflation, specifically the Fed’s preferred Core PCE (6m% and YoY, orange and purple lines). Any layperson can describe pricing power potency when part-timers replace their full-time counterparts. Corporate America must prepare to dig big.