Financial Review

Friday, June 06, 2014 – Jobs Report Friday

Jobs Report Friday
by Sinclair Noe


DOW + 88 = 16,924
SPX + 8 = 1949
NAS + 25 = 4321
10 YR YLD + .01 = 2.59%
OIL + .31 = 102.79
GOLD – .90 = 1253.30
SILV – .02 = 19.11


Another record high close for the Dow Industrial Average and the S&P 500.


It’s said that it takes a war to end a war; 70 years ago, 150,000 soldiers invaded Normandy, and it’s estimated that about 4,400 lost their lives in the biggest military assault in history, D-Day. There were ceremonies on the beach today, as well as locations around the world, to honor the soldiers lost and the veterans still with us; their numbers are dwindling with the passage of time, but about 3,000 made the pilgrimage to Normandy today.  For the rest of us, it’s hard to imagine what happened 70 years ago, but whatever difficulties we may face in our day to day lives seem small compared with what those men faced. This is a special day, one that should never be forgotten.


Each month we analyze the jobs report. The jobs number came in about as expected. Non-farm payrolls added 217,000 jobs in May. The unemployment rate, which is drawn from a different survey of households, remained unchanged at 6.3%.


April’s employment numbers were revised down to 282,000 jobs added from 288,000. March payroll figures were not revised, remaining at 203,000 jobs added. This is the fourth consecutive month that non-farm payrolls increased more than 200,000. That is the first time that we have seen four consecutive months of 200,000 or more since October of 1999.


The labor force participation rate also remained unchanged from the 62.8% rate reported for April. The participation rate has shown no clear trend since this past October but is down by 0.6% over the year. At 62.8%, the labor participation rate remains at lows not seen since the late 1970s, a sign that many Americans have given up the search for work entirely and remain wary about their prospects of getting a job, not even bothering to look for one. There are 3.37 million workers who have been unemployed for more than 26 weeks and still want a job; this is down from 3.45 million in April. Long-term unemployment is trending down; now at the lowest level since March 2009, but still high.


There are many reasons why the participation rate is low, and one key factor that we’ve heard repeated is that it is simply a case of demographics, or older workers who are near retirement age. However, according to data from the OECD, the employment to population ratio for workers between ages of 25-54 is down by 3.5 percentage points from its pre-recession level; and for workers between the ages of 55-64 it is only down by 0.9 percentage points.


With today’s jobs report, the US economy is now back to pre-recession peak levels of employment; we have recovered the number of jobs that were lost, and employment is now at an all-time high. This is the longest post-World War II recovery the US has experienced. The US lost 8.7 million jobs in the recession. Through the first five months of 2014, the economy has added 1,068,000 payroll jobs – slightly better than during the same period in 2013 even with the severe weather early this year. From the period between World War II and the 1980s there was a fairly predictable pace for recoveries. It took roughly six months for US employment levels to recover after each post-war recession through the 1980s. Then, things changed. It took 15 months after the 1990–91 recession for employment to reach its pre-crisis levels, and 39 months after the 2001 recession.


While the addition of nearly nine million jobs since hiring bottomed out in February 2010 is certainly good news, the number is still far from what is necessary to accommodate new graduates and millions of others who have entered the work force since payrolls last peaked in January 2008 at 138,365,000 jobs. We now have about the same number of jobs as we did then, but millions more who might wish to hold them. So, we’re back to where we were but not where we should be.


Here’s one way of looking at that. There were 7.6 million unemployed people in the US in January 2008, and the unemployment rate was 4.9%. Today, there are 9.8 million unemployed Americans, well over 2 million more than before the recession, and the unemployment rate is much higher.


Another important milestone as today’s report marks the 51st consecutive month of private sector job gains, which matches the longest previous string of consecutive employment gains. Our current streak matches the one that ran from February 1996 to April 2000. These two milestones give us an indication of how deep the losses were, but also how much further we need to go to get back to a solid economy.


The number of persons working part time for economic reasons declined in May to 7.26 million from 7.46 million in April.  These workers are included in the alternate measure of labor underutilization, known as U-6, which decreased to 12.2% in May from 12.3% in April. This is the lowest level for U-6 since October 2008, and down from the peak of 17.2%, but still high by historical standards.


Within various job segments, the business and professional services segment added 55,000 jobs, the same as its average monthly job gain over the prior 12 months. The healthcare industry added 34,000 jobs for the month, twice its average monthly gain for the prior twelve months. Retailers added 12,500 jobs and the transportation and warehousing sector added 16,400. The manufacturing sector added 10,000 jobs, and the length of the typical workweek for manufacturing workers increased slightly to just over 41 hours, a sign factory managers would rather add overtime instead of hiring additional workers. By contrast, the workweek for all employees in the private sector, including white-collar workers, was unchanged at 34.5 hours.


In May, average hourly earnings rose 5 cents to $24.38; over the past twelve months, average hourly earnings have risen 2.1%. We frequently hear that employers would hire more workers but the workers lack the skill set for the jobs. If employers were actually having difficulty finding workers with the necessary skills we should expect to see occupations or industries in which wages are rising rapidly. That is how employers attract workers for positions they have trouble filling. We are not seeing any major sectors of the economy with significant increases in wages, so that tends to invalidate the issue of a skills mismatch.


Even as private employers have gradually increased hiring in the recovery, the work force at government agencies and the Postal Service has shrunk dramatically. Total government employment is still down by more than one million from where it was four years ago. State and local governments added 6,000 jobs.  State and local government employment is now up 107,000 from the bottom, but still 637,000 below the peak. It appears state and local employment is now increasing.  Federal government layoffs are ongoing, with another 5,000 jobs lost in May.


Unlike previous reports, the gains have been broad based—there were new jobs created in many sectors, including higher paying and important ones like manufacturing and construction. But 50% of all the jobs being created in this country are still in the low-wage category: retail clerk positions, home heath aids, waitresses and the like. And more importantly, pay isn’t going up much. While it is certainly better to have a job compared to no job, better still to have a job that pays decent wages, and that is still missing.


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