US incomes Feb12.pngShort-term pressures have come to dominate financial markets in recent years. In turn, they have become dominated by high-frequency trading, which frequently accounts for over 60% of all market action.

Their trading is not based on careful analysis, but on extremely fast ‘black box’ computing, which generates ‘trading opportunities’ in micro-seconds. Their power is enormous, as Friday’s US market action showed in response to US jobless figures.

This is a pity, as the detail of the jobless figures themselves, and of those for personal income, provides valuable insight into the current state of the US economic recovery. As the chart shows:

• The number of US jobs (blue column) bottomed at 129m in Q4 2009
• It has since seen a slow but steady recovery, quarter by quarter
• But the current total of 132m jobs only matches that seen in 2001
• Disposable per capita income (red line) was $33.8k ($2005) in Q2 2008
• In Q4 2011 it was only $32.4k, and also lower than at the end of 2010

This is a completely different picture from anything seen in the past:

• Every 10-year period since 1939 (when jobs records began) has previously seen an increase in the number of jobs created. The past 10 years are the first time this has not happened.
• Similarly, every 2-year period since 1969 (when income records began), has previously seen a rise in real ($2005) disposable income. 2011 was the first time this has not happened.

Equally, the percentage of those unemployed for more than 6 months is at levels not seen since the Depression in the 1930s.

Of course, we can all hope that January’s rather modest jobs growth finally marks the start of a major upturn. But hope is not a strategy. It is certainly not a good reason for assuming that Friday’s euphoria means financial markets know something that the rest of us have missed.

The comparison with historical trends shows no sign of the strong job creation and rising disposable incomes that have powered economic recovery in the past.