As the weekend has progressed I have had some time to reflect on Friday’s employment report for June from the United States. As we have a lot going on at this time I thought that I would review it on its own as this weekend has a lot of other economic developments happening too. Finally in the UK others appear to be catching onto my stagflation scheme as we have our own signs of a weakening economy combined with producer price inflation that after a dip in May returned with a vengeance in May. We have seen both strong inflation and export strength from China. We are also seeing signs that Italy is being dragged more and more into the contagion of the peripheral Euro zone nations.
The Employment Report for June
From the Department of Labor we received this.
Total nonfarm payroll employment was essentially unchanged in June (+18,000). Following gains averaging 215,000 per month from February through April, employment has been essentially flat for the past 2 months.
So immediately we had a few things to think about. Firstly there was a shock effect from the 18,000 number for job creation which left Wall Street’s finest completely wrong-footed. Then it was nice of the report to ram home a point I have been making for some time that the hope and optimism of the spring for employment in the US has been replaced by a summer where it has slowed substantially. As it happens this report implies it has ground to a halt entirely but I counsel caution about relying on one report for that.
Next we found that the numbers for both April and May had been revised downwards.
The change in total nonfarm payroll employment for April was revised from +232,000 to +217,000, and the change for May was revised from +54,000 to +25,000.
So to add to an already disappointing headline number we found that the past two months had created some 44,000 less jobs than previously thought.
Looking into the detail of this report only provided more bad news as for example private-sector job creation fell from an already poor 70,000 in May to 53,000 in June. This is particularly significant because over this period we know that the US public-sector is cutting jobs meaning that the private-sector has a double burden at this time of not only generating enough job growth to reduce unemployment but also offsetting the reduction in jobs in the public-sector.
One other factor caught my eye.
Construction employment was essentially unchanged in June. After having fallen sharply during the 2007-09 period, employment in construction has shown little movement on net since early 2010.
Usually economic recoveries are marked by a recovery of the construction industry but as I have discussed many times this is not a normal recovery and the US construction industry looks as though it remains in the doldrums. This will feed through into the housing market which of course has plenty of existing problems and into the wider economy. Put another way it looks as though there has been no recovery here at all and this is an industry which traditionally responds to cuts in interest-rates. This time its response appears incredibly inelastic.
The Participation Rate
This number has attracted attention because it has fallen over the last few years. The concept is not complicated as it simply attempts to measure how much of the population theoretically available for work (239.5 million) is actually in it. As this fell to 153.4 million or 64.1% of the total we not only saw a further decline but a return to a rate last seen in the mid-1980s. Before the credit crunch above 66% was a typical figure. A change of 2% may not seem much but it is just under 5 million people and put that way it shows a marked change.
The Unemployment Report
The number of unemployed persons (14.1 million) and the unemployment rate (9.2 percent) were essentially unchanged over the month. Since March, the number of unemployed persons has increased by 545,000, and the unemployment rate has risen by 0.4 percentage point.
The use of “essentially unchanged” failed to hide the fact that the unemployment rate had in fact risen from 9.1% to 9.2. The rise in the number of jobless since March again reinforces the theme of a weakening economy. Furthermore as the detail of the report emerged there were other worrying numbers. For example the number of people jobless for 5 weeks or less rose confirming recent unemployment weakness but also so did the number unemployed for 6 months or more which means that the already chilling chart I put in Friday’s update has got a little worse. If you have not seen it yet I recommend you take a look at it. Just to add to the issue the avearge duration of unemployment rose to 39.9 weeks.
This is the most comprehensive measure of unemployment and is somthing I have followed on here for some time. As well as the headline number for those who have lost jobs it also covers those who have been forced to work shorter hours for economic reasons as well as those who are “marginally attached” to the labor force (who would look for work if they felt they might get a job). This number not only rose from 15.8% to 16.2% but 16.2% is the highest number so far for 2011.
So after two weak monthly employment reports we have a clearer idea on what seem to be reliable economic indicators at which point the initial jobless claims numbers can take a bow and less reliable which at this time seems to be the ADP employment report as it is now twice this year that it has misled (January and June) .
If we consider the consequence of this report we can see that the US labour market is turning out to be weaker than most expected. This has the consequence that if there are less people in work then those out of work will be likely to spend less and we can expect the path of consumption to be weaker too. This is one of the biggest influences on Gross Domestic Product and hence economic growth. For now it is clear that we can expect a weak economic growth figure for the second quarter of this year and worries will begin to surface about the third quarter too.
Having already written on the 8th of June that I think that it is quite conceivable that the US Federal Reserve could start a third wave of asset purchases or QE3 I now feel that it has got a little more likely with these numbers. After all the Fed. keeps repeating that its priority is unemployment and the unemployment rate has now risen by 0.4% since March.
Also I think we should take a moment to think of the “ninety-niners” as I fear that their numbers will continue to increase…..
See also: The costly paradox of productivity
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