The highly anticipated May Unemployment Report was released this morning. How did it look and what does it mean for our ‘walking pneumonia’ economy?
We have some good news and we have some bad news; more importantly than the monthly snapshot, though, let’s step back and take a wide angle view of our overall employment situation. On that note, let’s navigate.
The Wall Street Journal highlights the following:
Job growth surprised on the high side but there are still soft spots. Nonfarm payroll employment in April expanded a healthy 244,000, following a revised 221,000 boost in March and a 235,000 rise in February.
The April gain topped analysts’ estimate for a 185,000 advance. Also, the February and March revisions were up net 46,000. Private nonfarm payrolls were even stronger, growing 268,000 in April, following a 231,000 rise in March. The consensus forecast called for a 200,000 increase in April. Gains were seen in goods-producing and service-providing sectors.
Certainly a net plus in these numbers…on the surface. Let’s continue.
Wages were sluggish in April as average hourly earnings rose 0.1 percent, following a 0.2 percent gain in March. The latest figure came in lower than the median forecast for a 0.2 percent improvement. The average workweek for all workers posted at 34.3 hours, the same as in March and the consensus estimate.
The .2 per cent gain in March was actually a revision from an initially reported flat reading. That said, the .1 per cent gain in wages on top of the .2 per cent gain last month is not helping consumers keep pace with the dramatic rise in cost of fuel, food, and other products. What’s the overall impact? Do not expect a growth in consumer discretionary spending as we highlighted in our commentaries yesterday. The fact that the workweek is not improving leads us to believe that there is no real backlog in orders which would also indicate economic growth.
To be perfectly frank, with these figures in wages and the hourly workweek, consumers are continuing to tread water at best in terms of overall purchasing power. This is not good.
Turning to the household survey, the unemployment rate rose to 9.0 percent from 8.8 percent in March.
The real story. Why did the rate move higher and what does this mean? What are the differences in the household survey as compared to the established survey utilized by the Bureau of Labor? Great question.
The household survey interviews 60,000 households, while the establishment survey gathers data from 160,000 businesses and government agencies covering 400,000 work sites, or about one-third of all payroll workers. While the Employment Report is released on a monthly basis, the surveys actually cover only a single week that includes the 12th day of the month.
Both surveys have their merits and drawbacks. The household survey includes just about every kind of employed person, including self-employed persons, agricultural workers and even those who work in the home raising a family. The establishment survey includes only employees of companies that provide payroll counts. So even though its survey sample is large, the establishment survey misses a significant demographic and can really misrepresent the rate of employment when the number of self-employed persons hits extremes. The household survey, however, covers only 60,000 people and is often criticized for being volatile due to the relatively small sample size.
The fact is while the established survey highlights a growth in non-farm payrolls this month of 244k jobs, the household survey indicates a loss of 190k jobs. That sucks, but while Wall Street and Washington will zero in on this month’s figures, we continue to be in a crisis.
In fact, if the overall labor pool had not shrunk since the start of The Great Recession, our unemployment rate would be pushing upwards of 11%!! What else should we not forget? The following as recently presented by Mohamed El-Erian in commentary entitled, Sleepwalking Through America’s Unemployment Crisis, at Project Syndicate,
At 8.8% (now 9.0%) almost three years after the onset of the global financial crisis, America’s unemployment rate remains stubbornly (and unusually) high;
Rather than reflecting job creation, much of the improvement in recent months (from 9.8% in November last year) is due to workers exiting the labor force, thus driving workforce participation to a multi-year low of 64.2%;
If part-time workers eager to work full time are included, almost one in six workers in America are either under- or unemployed;
More than six million workers have been unemployed for more than six months, and four million for over a year;
Unemployment among 16-19 year olds is at a staggering 24%;
With virtually no earned income and dwindling savings, the unemployed are least able to manage the current surge in gasoline and food prices, they are effectively shut off from credit, and many have mortgage debt that exceed the value of their homes.
These and many other facts speak to an unpleasant and unusual reality for the United States. The country now has an unemployment problem that is large in magnitude and increasingly structural in nature. The consequences are multifaceted, involving immediate personal anguish, rising social and political tensions, economic losses, and budgetary pressures.
This is much more than a problem for the here and now. High and intractable unemployment has serious negative long-term consequences that threaten to become exponentially worse. This is a crisis.
Substantial international research shows that the longer one is unemployed, the harder it is to get a job. This erodes an economy’s skills base and saps its long-term productive capacities. And, if unemployment is particularly acute among the young, as is the case today, too many of the unemployed risk becoming unemployable.
Undoubtedly, the Great Recession triggered by the global financial crisis has contributed to this worrisome situation. Unfortunately, the problem is much deeper, as it was long in the making.
At its root, America’s jobs crisis is the result of many years of under-investment in human resources and the social sectors. The education system has lagged the progress made in other countries. Job retraining initiatives have been woefully inadequate. Labor mobility has been declining. And insufficient attention has been devoted to maintaining an adequate social safety net.
These realities were masked by the craziness that characterized America’s pre-2008 “Golden Age” of leverage, credit, and debt entitlement, which fueled a gigantic but unsustainable boom in construction, housing, leisure, and retail. The resulting job creation, though temporary, lulled policymakers into complacency about what was really going on in the labor market. As the boom turned into a prolonged bust, the longer-term inadequacies of the job situation have become visible to all who care to look; and they are alarming.
Left to its own devices, America’s unemployment problem will deepen. This will widen the already-large gap between the country’s haves and have-nots. It will undermine labor’s skills and productivity. It will accentuate the burden imposed on the gradually declining number of people who remain in the labor force and have jobs. And it will make it even harder to find a medium-term solution to America’s worsening public-debt and deficit dynamics.
I could not have said it better myself, although I think that I have tried. Markets will fluctuate today in reaction to this morning’s report but the REAL report on unemployment in our nation is embedded in El-Erian’s ‘sense on cents‘ analysis.