The US unemployment and employment figures point to a stalling economy

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ram home a point I have been making for some time that the hope and optimism of the spring for employment in the US has been replaced by a summer where it has slowed substantially.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.

U-6 Unemployment

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.

Comment

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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  • Andy none

    People understand technically what 99er means, but you might want to watch http://www.cbsnews.com/video/watch/?id=6987699n&tag=contentMain;contentAux which is a 60minutes clip talking to actual people in this situation.

    You may be surprised to find them well educated, positioned in sound geographical locations with a keen desire to work. Its a brutal downward spiral the US finds itself in when it will require some 250,000 new jobs EVERY MONTH for over 6 years before its back to pre-crisis levels.

  • Anonymous

     The US construction industry is unlikely to be building many new homes any time soon. In the boom times agents were pushing buyers to participate in “flipping” of off plan homes. This is an unsustainable ponzi scheme. The banks own large numbers of repossessed properties that they cannot sell without incurring large losses. Demand will not return until this oversupply is worked off. The long term sustainable level of residential construction will be lower than the years 2000 through 2005. Future residential construction will employ fewer people.

  • Andy none

    Forgot to mention this. The Sunday Times business section noted Mervin kings insistence that his own departments pension fund growth remain linked to RPI and not CPI. This speaks volumes of the duplicity of how ordinary pensioners are treated, and makes a mockery of Alistair’s Darlings claims that this would be the same for all.

  • Anonymous

    “250,000 new jobs EVERY MONTH for over 6 years ”

    That suggests 18m+, wheras Shaun’s figure in the article is just under 5m – both are nasty, but that’s a big discrepancy. Where does the 18m figure come from? Thanks.

  • http://themeanoldinvestor.blogspot.com/ Mr_kowalski555

    Eur/CHF: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/EURCHF%207.11.jpg

  • Anonymous

    Hi Shaun
    In the light of this emerging data how feasible is it for the Fed to manipulate conditions to get US unemployment back to its target long-run average of 5%. What expansion of the workforce would this take and over what period. Perhaps the long-run average unemployment rate going forward will just be higher.

  • Andy none

    I used this http://www.zerohedge.com/article/us-needs-generate-254000-jobs-month-65-months-get-pre-depression-employment-end-obama-second

    It’s crude but is correct. The additional time I’ve added is due to the birth/death adjustments which are currently baked into the BLS numbers. If you take June 2010 and Jun 2011 and look at the (nearly) unadjusted numbers then you will see there is a deficit of nearly 500,000 jobs. I.e. the claim of 1,000,000 million new jobs is a little light.

    Regards

  • Anonymous

    Shaun, 
    This article has not appeared in the RSS feed. You may wish to get your techies to look into it.

  • Anonymous

    You say that QE 3 is now more likely!    Heaven help us.    This surely will push both soft and hard commodities higher.   The effect this is already having on the rest of the world is bordering on catastrophic now, and it is to go on!   Something needs to be done to lift the USD of its pedestal before the rest of the world becomes revolutionary.  

  • graeme_b

    Have you seen the Italian 2 yr bond yield today?

    Holy $h!t!

  • Anonymous

    Hi Andy and Daz

    My number was purely allowing for the change in the participation rate alone. In some ways it represents something of a structural change in the US economy and we cannot be sure it will return to what was only recently regarded as normal. But as a stand alone factor some 5 million jobs have gone.

  • Anonymous

    Hi Andy

    I would cap the pension benefits of members of the Monetary Policy Committee at 2% per annum and set it against the usually lower Consumer Price Index rather than the Retail Price Index. Otherwise they are in effect being rewarded for failure and even worse are likely to be in a better position than those they are supposed to protect.

  • Anonymous

    Hi Shire

    If I remember the numbers correctly then they will need to find around ten million new jobs assuming the population and workforce etc remain constant. At the average rate of the last 2 months this will take around 39 years!

    I think that it is yet another reminder that rather than bail outs and too big to fails we need some genuine reform to kick start a supply side improvement to the economy.

  • Anonymous

    Hi Graeme

    I have discussed Italy in a new article as it turned into quite a day….

  • Anonymous

    Thanks there was a glitch over the weekend which should now be fixed. Apologies for any inconvenience.

  • Anonymous

    Seen tonights numbers Mr.K?

    Challenging 1.15 on the Euro Swissy reminds me of all those who took out Swiss Franc mortgages in Eastern Europe.Since I last visted this topic in late May their mortgages have grown by 6%….

  • Anonymous

    Hi Daz

    Here are Ben Benankes thoughts on the numbers from his speech on Capitol Hill earlier today.

    “To date, of the more than 8-1/2 million jobs lost in the recession, 1-3/4 million have been regained. Of those employed, about 6 percent–8.6 million workers–report that they would like to be working full time but can only obtain part-time work.”