Friday, May 3, 2013

Friday, May 03, 2013 - Jobs on the First Friday in May

Jobs on the First Friday in May
by Sinclair Noe

DOW + 142 = 14,873
SPX + 16 = 1614
NAS + 38 = 3378
10 YR YLD + .12 = 1.75%
OIL + 1.47 = 95.46
GOLD + 3.30 = 1471.70
SILV + .30 = 24.23

If you've been a regular listener over the years you know that I get a little wonkish on the first Friday of each month. That's the day we get the monthly jobs report. I consider this to be one of the most important economic reports and so I spend a little extra time covering it. Stick around, and we'll make you an expert.

Today, the Labor Department reports there were 165,000 net jobs added to the economy in April. The unemployment rate dropped to 7.5%, down from 7.6% in March; that's the lowest level since December 2008. The number of jobs added beat estimates of a gain of 135,000 to around 155,000. The number of new jobs created in March was revised up to 138,000 from 88,000, while February’s figure was revised up to 332,000 from 268,000. With the revision, the 332,000 jobs gained in February was the biggest monthly gain in jobs since November 2005. So, the economy created 114,000 additional jobs in March and February than initially estimated. The average for the past three months is about 211,000 jobs. It is widely estimated that the economy needs to add 250,000 over an extended period of time in order to see the unemployment rate drop below 6%.
The number of people employed part-time for economic reasons, involuntary part-time workers, increased by 278,000 too 7.9 million, offestting a decrease in March. These are people working part-time because their hours have been cut back of they couldn't find full-time work.

The number of part time workers increased in April to 7.92 million from 7.64 million in March. Nearly one in five new workers hired in April took jobs as temps, indicating companies are reluctant to add permanent employees.
These workers are included in the alternate measure of labor underutilization,U-6, that increased slightly to 13.9% in April.

According to the BLS, there are 4.35 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 4.61 million in March. This is trending down, but is still very high.  This is the fewest long term unemployed since June 2009. The longer those people stay out of work the more their skills erode, making them less attractive to employers.
One issue worth emphasizing from this and past reports is that there is zero evidence that the prolonged period of high unemployment is due to a lack of skills of the workforce. This is known because there are no major areas of the economy in which we see the standard signs of a shortage of skilled workers: rising wages, increasing hours, and large numbers of vacancies. However at an even more basic level, the rise in unemployment rates has been roughly proportionate across education levels.
In fact, the unemployment rate has gone up slightly more for college grads relative to its pre-recession level than for people without high school degrees.

Total nonfarm employment is up 2.077 million over the last year, and up 783 thousand so far in 2013; for a 2.35 million annual pace. Private employment is up 2.166 million over the last year, and up 813 thousand so far in 2013; for a 2.44 million annual pace. This would be the strongest annual rate for private sector job growth since 1999 if this pace continues for the entire year. The increase in hiring in April took place entirely in the private sector, which added 176,000 jobs. Professional services added 73,000 workers; bars and restaurants hired 38,000 people; and the retail business generated 29,000 jobs. Construction cut 6,000 jobs, even as home-builders added workers.

The concentration of overall employment gains in low-productivity service-sector jobs is not a promising sign for restoring the economy. The National Employment Law Project reports that while 58% of jobs lost in the financial crisis of 2008 were middle income, 60% of jobs gained in the recovery pay low incomes.

So, for now, government is acting as a drag on jobs; cutting 11,000 net jobs in the last month. Public payrolls continue to shrink and they have been shrinking for 4 years. State and local governments lost 3,000 jobs in April. Federal government layoffs are ongoing with many more layoffs expected due to sequestration spending cuts.

 Hourly earnings edged up 4 cents in April to $23.87, but they’ve risen only 1.9% over the past 12 months. However, aggregate weekly hours were down 0.4%; this is a measure of the total number of hours worked. In April, companies hired 165,000 more workers, but they cut everyone’s hours by 12 minutes on average. That doesn’t sound like much of a decline, but spread out over the 135 million-strong work force, the decline in hours worked is the equivalent of firing more than 500,000 workers while keeping hours steady. That sounds worse than it is. If we average the first four months of the year, we find that aggregate hours grew at a 1.2% annual pace, consistent with about 2% growth in gross domestic product. This month's decline in aggregate weekly hours may be the first indication of the effects of furloughs from the sequester.

Overall, the U.S. economy is severely under-employing labor resources with only 59% of the working-age population actually working; the lowest level since 1983. This isn't enough to ease the backlog of job losses since 2007; estimates range between 3 million and 8 million during the downturn back then. So, even though we see improvement, we just can't seem to get up to cruising speed. This is part of a structural problem with the recovery; all the economic gains have gone to the top, leaving the middle class with less; and that money doesn't circulate at the same velocity as money that goes to day to day living.

That number may not be entirely accurate. The weak economy has pushed many workers into the shadows of the underground economy. When we look at the long-term unemployed, and the people who have fallen off the government ledgers you may be wondering what happens to those people. We know the government stops counting them, but they are still here; they still need daily meals;they still need a roof over their head. The shadow economy is a system composed of those who can't find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid.

Estimates are that underground activity last year totaled as much as $2 trillion, roughly double what it was in 2009, and possibly up to 8% of GDP. The underground economy is often associate with illegal activity, also undocumented workers, and more and more it is associated with work done for cash that never gets reported. There are dangers associated with the shadow economy; a lack of workplace protections for example. But some income is better than none, but it's a sign of how bad things are and how we have to get the real economy moving again.

And so stocks moved to record highs because today's jobs report confirmed everything the stock market wallows in. The economy gained enough jobs to keep slogging along without giving the Federal Reserve reason to reconsider Quantitative Easing, and the fact that the government's budget cutting slowed jobs growth further confirms the fact that the Fed can't fix the economy on their own and therefore they can't relax or try to exit from QE. This is exactly what Wall Street wants; fiscal policy that restrains economic growth and monetary policy that continues to pump massive infusions of capital into the market without overheating the economy.
Twisted? Yes.

Some reading material over the weekend:
Jeffrey Sachs was interviewed by WSJ MoneyBeat and the professor responded to comments he made at a Phlly Fed conference in May, basically saying that most of Wall Street's daily business is “criminal behavior”, and he is amazed by the sheer number of scandals. I've been talking about for years. Welcome to the bandwagon Dr. Sachs.

Next, Professor David Romer from UC Berkeley offered this post looking at how we can prevent the next catastrophe. The basic idea is that financial shocks are not rare; they are largely caused by the banksters; small scale policy solutions aren't much of a solution; we need to cut the financial institutions down to size. Welcome to the bandwagon Dr. Romer.

Your next reading assignment is Dr. Joseph Stiglitz from Columbia University, and Nobel Prize winner. Stiglitz offered this post looking at lessons from the financial crisis and what that can teach us about theory and policy. Stiglitz says markets are not stable, efficient or self correcting and we need structural transformation not halfway measures, and now is the time for big action. Dr. Stiglitz has been on the bandwagon for a long time and I always enjoy reading his work.

Pope Francis called for an end to slave labor and human trafficking as well as greater efforts to create dignified work for more people. This is ancient economic wisdom and it is good to here it coming from Vatican City.

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