7 Long-Term Factors Directly Affecting US Job Growth
The economy is still in a structural readjustment that will leave the middle class higher and drier. Here, some of the factors that will continue to affect employment.
Here are the headline numbers from Econoday:
The 8.8% unemployment rate is the lowest since March, 2009. Private employment was actually up by 230,000, but the BLS deducts the loss of jobs from the public sector from that amount to get to the 216,000 headline number. The breakdown was as follows (from the BLS report):
Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.
The number of unemployed persons (13.5 million) and the unemployment rate (8.8 percent) changed little in March. The labor force also was little changed over the month. Since November 2010, the jobless rate has declined by 1.0 percentage point...
In March, the civilian labor force participation rate held at 64.2 percent, and the employment-population ratio, at 58.5 percent, changed little.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in March, at 8.4 million. … In March, 2.4 million persons were marginally attached to the labor force, up slightly from a year earlier. … Among the marginally attached, there were 921,000 discouraged workers in March, little changed from a year earlier. … The remaining 1.5 million persons marginally attached to the labor force in March had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities. …
Where are the job gains coming from? (from the BLS):
In March, employment in the service-providing sector continued to expand, led by a gain of 78,000 in professional and business services. Most of the gain occurred in temporary help services (+29,000) and in professional and technical services (+35,000).
Health care employment continued to increase in March (+37,000). Over the last 12 months, health care has added 283,000 jobs, or an average of 24,000 jobs per month.
Employment in leisure and hospitality rose by 37,000 over the month, with more than two-thirds of the increase in food services and drinking places (+27,000).
Manufacturing employment continued to trend up in March (+17,000). Job gains were concentrated in two durable goods industries-fabricated metal products (+8,000) and machinery (+5,000). Employment in durable goods manufacturing has risen by 243,000 since its most recent low in December 2009.
In March, employment in mining increased by 14,000, with much of the gain occurring in support activities for mining (+9,000).
This data matches the private reports that came out this week from ADP, Challenger, Monster, TrimTabs, and even Gallup (more in a moment), which hasn't occurred for quite a while. The only fly in the ointment came from the recent jobless claims report from the BLS that was down slightly for the week, but actually up slightly in the four-week moving average.
Here is how the data look:
The closely watched "U-6″ report improved as well:
Click to enlarge
U-6 was not significantly improved according to the BLS. About 45.5% of unemployed Americans, or 6.1 million people, were out of work for more than six months in March, up from 43.9% in February.
Wage growth continues to be flat:
Over the past 12 months, average hourly earnings have risen by 1.7 percent. From February 2010 to February 2011, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 2.2 percent.
One disturbing thing about the data is that much of job growth appears to be coming from low-wage jobs. For example the services sector added 78,000 jobs but they seem to be at opposite ends of the wages sector: temporary help services (+29,000); professional and technical services (+35,000). Also, the Leisure and Hospitality sector grew by 37,000 but two-thirds of the increase occurred in food services and drinking places (+27,000). Temps and waiters aren't going to grow this economy.
In an interesting piece from Costco's monthly magazine, in a debate on the value of a college education, Professor Richard Vedder argues that we are churning out too many college graduates who don't have the skills required by the workplace (he favors more vocational training). He says:
[T]he number of highly skilled, managerial, professional and technical jobs is growing far less rapidly than the number of new college graduates. We now have almost one-third of a million waiters and waitresses with college degrees, and more than 15 percent of taxi drivers likewise have a diploma. I have estimated that 60 percent of the increase in the proportion of Americans with college degrees since 1992 has ended up doing jobs that the Bureau of Labor statistics says do not require a college diploma.
We can conclude from this that while employment is growing, such growth is tepid at best. While the government and many economists can spin it in a more positive light, we are far from job growth as opposed to stemming the losses.
The Wall Street Journal's Sudeep Reddy put the numbers in perspective which reveals the enormity of the task ahead:
The payroll gains in March were good. But we'd need eight years of consistent monthly gains just like that - taking us to the year 2019 - to bring the economy back to full employment.
The labor market lost almost 8.8 million jobs from the peak for payrolls in January 2008 (138 million payroll jobs, when the unemployment rate was 5%) to the trough in February 2010 (129.2 million). Since then, the US has added 1.5 million jobs.
If the March gain of 216,000 jobs were to continue, payrolls would return to their peak in 34 months - early 2014.
But the economy also needs to add at least 100,000 jobs a month just to keep pace with long-run growth in the labor force. That brings us to early 2019 under March's pace for payroll gains.
The bottom line: the labor market needs to be producing far more jobs - 300,000 to 400,000 a month - to put the labor market on a trajectory that most Americans would find acceptable. Even adding 300,000 jobs a month would take almost five years to get back to full employment.
I haven't tested these numbers, but, if true, they are sobering at best. Prior calculations were in the range of 200,000 to 250,000 jobs per month growth to get us back to "full employment." Of course many economist are projecting future employment gains on a straight-line continuous uptick based on today's news. The Fed is still forecasting another three years to get back to "full."
It reinforces my belief that the economy is still in a structural readjustment that will leave the middle class higher and drier. The long-term factors that will continue to affect employment include:
1. The decline of the construction and real estate industry which supported a large services structure (commonly known as FIRE: finance, insurance, and real estate).
2. Demographics related to retiring baby boomers will force them to continue to work to prepare for retirement which makes them compete for lower paying jobs.
3. A more competitive world that is able to compete with American expertise as their economies improve and provide more jobs for highly skilled services which may reduce the pool for available technical skills.
4. A dumbing down of our educational system that turns out more communications majors than software engineers.
5. Inevitable higher taxation in the US that will drain more capital from the economy.
6. Government spending takes a larger and larger share of GDP.
7. A monetary system that continues to debase the dollar and wipe out real savings needed for expansion.
This is not a definitive list, but it is one that will directly impact job growth in America. All of these factors will negatively affect future economic growth and the requirement for future employment gains.
For the near term, I see continued slow improvement in employment, but I think we are headed to a higher level of permanent unemployment than the 5% that existed in pre-crash 2008. I cannot predict a certain level, but my estimate is that it will stall out at 6.5% to 7.0%.
Again, as my readers know, I think this adds up to stagflation.
One last note. A Bloomberg interview with Pimco's Bill Gross yielded the shocking conclusion that Gross thinks these employment numbers prove that the Fed's quantitative easing is working. "Their objective obviously is to improve the economy and to create jobs, but also to put a floor under the stock market, and we know that's working." That is such an absurd remark that it deserves a separate article.
Editor's Note: This article was originally published at The Daily Capitalist.
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter