Glass Half Empty on Unemployment Report
The pundits are all excited that payrolls in the unemployment report released this morning fell by 345,000 in May, compared with an average estimate for a decrease of 520,000. They point to the fact that a reduction in job losses is a precursor to gains in the job market. The unemployment rate rose to 9.4%, up from 8.9% in April and higher than the 9.2% estimated. ¬†Of the jobs created,¬†220,000¬†are estimates based on the government’s birth/death model; last year in May, 176,000 were created through the model. The average workweek fell to 33.1 hours, the lowest on records dating to 1964; some say this is a positive as more temporary workers are hired, a precursor to full-time jobs being created.
I don’t see it that way. Many of the jobs created are part of the 1.2 million census workers hired by the government; these jobs will not convert to full-time jobs. More importantly, many of the part-time jobs created are jobs people take on to get by; these people used to earn 6-figure incomes, but are now scrambling with consulting jobs to get by. I don’t see these jobs coming back any time soon.
As long as our economy is artificially propped up through massive government spending and as long as home prices are not allowed to adjust to a level where they can be supported by incomes, this recovery is going to have some serious issues.
In the meantime, mortgage rates are going up as all this money being printed is having some impact, although not the desired one…
Axel
Axel Merk
Author of Sustainable Wealth
President and Chief Investment Officer, Merk Investments
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6 Responses to “Glass Half Empty on Unemployment Report”Speak Your Mind
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Not only have those who have lost their middle management level jobs (who are now consulting to get by), but many recently retired have come back into the job market (see rise in labor force) because their retirement funds have been cut in half. Likewise, many who were approaching retirement will postpone for the same reasons. This will lengthen average duration of unemployment and also place upward pressure on the absolute unemployment figure, constraining consumer spending. Combined with rising rates, which now seem an inevitability, this will put increasing pressure on an economic turnaround. Thus, a rebound in those six figure jobs is unlikely over the near term. We’re likely to see an elevated level of unemployment for some time.
The data still points to things getting less worse, not getting better – I think the aforementioned factors will hamstring the economy and we’re likely to muddle through (not hockey-stick rebound) for some time. And I haven’t even mentioned inflationary pressures!
Kieran Osborne
SustainableWealth contributor & Merk Senior Analyst
The report does have its strong elements. Government employment was actually down slightly. April employment was revised up, by 53,000 NSA and 82,000 SA. (Without the seasonal factor revision for April, the April SA number would have been revised up by 53,000, which would have made the May decline 313,000 instead of 345,000.) March NSA was also revised up, by 18,000.
The upward revisions and large increase in the labor force in the household survey suggest that the job market is stabilizing.
Bill Poole
SustainableWealth contributor & Merk Senior Economic Adviser
Former President of the St. Louis Federal Reserve
SA = seasonally adjusted; NSA = non-seasonally adjusted
This is worth looking at for alt. views of the econ etc…
Steve
Dear Mr. Merk and Poole,
I see a mixed bag when I read the employment report. I’ve heard a number of economists declare “the end of the recession” on the basis of the employment report. Troubling is aggregate work hours index down 0.7% month on month, also down a little more than 2% quarter on quarter. Previous recession have not ended until AWHI is nearly flat (i.e. 0%) growth when measured quarter on quarter change.
Regarding employment and unemployment, usually they are lagging indicators. I wonder if this time they will be coincident or leading indicators. In essence, this recession stems from balance sheet (banks and consumer). Can it be that as things worsen for the consumer (i.e. job losses and very little rehiring) that loan losses will continue to rise, banks will loan less, resulting in a feedback mechanism. I’d appreciate your thoughts on this.
Sincerely,
Jeffrey
Though I agree with the foregoing commentators on the fundamentals, I do not necessarily believe that interest rates are going up right away. This market has proven that results don’t always come about due
to any rational behavior. Markets are comprised of mass or herd psychology and quite a bit of manipulation, i.e., very big players can move the markets at the last minute by simply agreeing to pay too much for very few shares of index stocks. This artificial cheerleading won’t work just like it didn’t work in 1932. I think corporate bonds were the baby that got thrown out with the equity bath water and should do better while the stocks continue in a general malaise that will last for many years. If the other strong currencies try to dump the dollar, it will not be stocks that benefit but the stronger currencies or stocks of those countries or land or gold. If investors have learned anything it is to ignore mantras like stocks always go up.
Axel,
You bring up very good points about jobs. Between those that have switched from relatively higher paying to now sustenance level status, and taking into account removal of “discouraged workers” from the ranks of the unemployed who have been out of work for over a year, the actual employment picture is much worse than advertised.
Speaking on the subject of real versus reported unemployment data, it continues to amaze me how so many noted economists (including yourself) continue to use BLS numbers as if they could rationally be compared to pre-Clinton era data. Using analysis provided by John Williams via his shadowstats.com service, if you undo the various “biases” that have been applied over the last few decades (and always to the benefit of lower reported unemployment), actual unemployment–the way it used to be calculated–just hit a new high of 20.5% from May’s data.
We may not be at great depression levels, but the employment situation is far far worse than being reported. And, like Williams, I don’t consider employment data to be a lagging indicator; it is as genuine a current status indicator as there ever has been.