Payrolls in U.S. Rose 115,000 (miss) in April; Jobless Rate at 8.1% (beat)
This is the first Friday of the month and that means it’s time for the monthly employment situation report, commonly referred to as the “jobs number”. In it, we found that there was an 115,000 increase in the number of non-farm payrolls in April, far below expectations of 160,000. On the other hand, the propaganda unemployment rate came in at 8.1%, down from the previous month and better than expectations. That is also the lowest reading for the unemployment rate since January 2009. The negative weather “payback” explains part of the deceleration in job growth and the surprising unemployment rate decline was due to another drop in labor force participation (more below). Also, the household survey measure of employment falls for second month.
How can this be? How can the unemployment rate drop while the number of jobs added is barely keeping up with population growth? The CBO and all other government forecasting agencies assume a 90,000 growth in the labor force every month as it has to keep in line with population growth in the US. What is a better number to use? Well, using the long-term average labor force participation rate of 65.8%, there was an undercounting in U-3 of 5.4 million additional workers. Adding that to the reported 12.5 million brings the number of unemployed up to 17.9 million, meaning the real unemployment rate is actually 11.6% versus the reported 8.1% level.
Even if you accept the 90,000 a month assumption by the CBO, the downtick in the reported unemployment rate can still be accredited to the labor force participation rate, the percentage of the working age population in the labor force, decreasing to 63.6% in April, a new 30 year low (see below). This participation rate is well below the 66% to 67% rate that was normal over the last 20 years.
Also, in April, the employment-population ratio declined to 58.4% and the number of people not in the labor force rose by 522,000 to 88,419,000. This is the highest on record (see below).
Basically, aside from the overoptimistic nature of the calculation, the reported unemployment rate is artificially going down despite the payback we are now starting to receive for the growth brought about earlier this year by the record warm winter. Both nonfarm payrolls and recent household survey’s measure of employment point to a loss of momentum.
Additionally, and most horrifying, are the trends in the types of jobs being created. The chart below shows the massive drop off in full-time employees and the substantial rise in part-time hires as the US continues on the path to becoming a nation of part-time workers, as full time jobs disappear or are sent overseas.
As far as the Fed is concerned, they have recently communicated that the decline in the unemployment rate in the past year has been faster than expected stressing that higher structural unemployment, an ageing population, slower potential growth, and weaker productivity growth have increased how much unemployment can decline for a given amount of growth. A falling unemployment rate lowers the probability of further Fed asset purchases and even if the reported number falls to under 8% its persistence above the Fed’s estimates of the natural unemployment rate suggest FOMC policy will remain on hold at least through 2013.
More importantly though, this has been the worst post-war recession and lingering effects of the bursting of the housing bubble and financial crisis have exacerbated the recovery. Employment has also been going through the slowest recovery since the Great Depression best highlighted in the graph below showing the percentage of job losses from the start of each recession and the number of weeks needed for recovery to pre-recession levels.
Clearly at over 50 weeks into the current “recovery” and still far below 2007 levels of employment, don’t let anyone fool you into believing that what we are experiencing is an exceptionally robust return to economic prosperity.
Data Sources: Exabyzness, BLS, CBO, FRED, Zerohedge, Calculated Risk
Source - Bloomberg