Bad U.S. Economic News: Job Growth Stalls While Unemployment Rises

Bad economic news: job growth has stalled and unemployment has risen:

The American jobs engine hit stall speed in May, with the economy adding just 69,000 new jobs while the unemployment rate climbed to 8.2 percent.

As another summertime swoon looms, the Bureau of Labor Statistics reported that job creation missed economist estimates for 158,000 new positions and the jobless rate rose for the first time in nearly a year.

Labor force participation remains near 30-year lows though incrementally better than last month, rising to 63.8 percent.

The unemployment rate that counts discouraged workers rose as well, swelling to 14.8 percent form 14.5 percent in April.

Long-term unemployment also took a sharp upturn, with the number of those out of work for 27 weeks or more jumping from 5.1 million to 5.4 million. The average duration of unemployment moved from 39.1 weeks to 39.7 weeks.

“It’s painfully obvious the economic recovery in the U.S. isn’t just slowing down, it’s pulling up the emergency brake. And, lack of job creation isn’t the only critical concern. Wages/Income is sharply lower,” said Todd Schoenberger, managing principal The BlackBay Group in New York.

“For those lucky enough to have a job, their spending power is sliding when accounting for inflation. The markets will respond negatively to this report,” he added. Markets reacted immediately to the numbers.

And, it could be even worse than it appears:

The unemployment rate rose slightly to 8.2% in May, holding above 8% for the 40th straight month, the Labor Department reported Friday. But actual employment rates of core working age Americans suggests the true jobs situation is even worse.

From mid-1987 until the Great Recession, the employment-to-population ratio of 25-54-year-olds usually ranged from 78.5% to 80%. It never fell below 78.2% even during the 1990-1991 and 2001 slumps.

But now, nearly three years after the recession ended in June 2009, that ratio stands at just 75.7%.

“Right now this is probably a better measure than the unemployment rate,” said James Sherk, senior policy analyst in labor economics at the conservative Heritage Foundation. “There are so many people dropping out of the job market and the unemployment rate, bad as it is, doesn’t pick that up. The ratio gives a better idea of employment opportunities.”

Added Heidi Shierholz, an economist at the liberal Economic Policy Institute, “Looking at this ratio sidesteps a lot of structural issues, like baby-boomers retiring. You are looking at prime-age workers and it gives you a better sense of the weakness in our current job market.”

The jobless rate can be misleading because it only includes the share of people looking for work but don’t have a job. Those not trying to get a job aren’t counted as unemployed. And the labor force participation rate has fallen to its lowest level in decades.

Will America’s political class come to America’s rescue?

Don’t hold your breath (unless you want to turn blue).

Zachary Karabell writes on The Daily Beast:

America’s political process will not do much to ameliorate matters. Republicans in Congress, trying to maintain the furor of the Tea Party, and presidential challenger Mitt Romney, have a vested electoral interest in portraying the United States economy as broken by the policies of President Obama. That, combined with the looming “fiscal cliff” at the end of the year—when both parties in Congress will have to renegotiate the tax cuts and future spending that they failed to compromise on during the fateful downgrade summer of 201—offers little hope going forward.

And yet, while this vortex of negatively reinforcing views speaks volumes about the dysfunctional nature of politics and finance, that is not the only reality. Clearly, there is some degree of slowdown in global economic activity underway, as companies, countries, and individuals become cautious in the face of the fear and some significant unresolved structural issues in Europe, China, and the U.S. That is not the same as collapse, and the American labor market demonstrates that.

In fact, the labor picture in America has been shifting for decades, and recent dislocations have only stripped away the last vestige of collective denial. Some still maintain that current employment problems are a product of government policy and can be solved by better policies. But that is a faith-based view. What is evident in fact is that there is a dislocation many years in the making and many years in the healing, aggravated by poor public policy. There is a mismatch between skills and jobs, and between needs and wants. College graduates remain far better placed in this economic system, even with struggles in the first years after graduation. The unemployment rate for those with a bachelor’s degree dipped in May, according to this report, to 3.9 percent, which in truth is close to “full employment” given natural ebbs and flows.

Lastly, there is the problem of numbers and averages. Systemically, there is an 8.2 percent unemployment rate. There is a severely low “labor force participation rate” of 63.8 percent (though that did increase in May), which means that many people are so discouraged they aren’t even looking for jobs. And there are tens of millions of people underemployed or employed with a wage that pays them too little to rise out of poverty.

Add to that the ongoing, worsening economic crisis in Europe – and it could be that the coming months will bring more bad news…

         

2 Comments

  1. And all we see and hear is politicians traveling across America telling everyone how the other side has not done anything to help and their inaction is only hurting.

    Has anyone really seen leadership like we saw with the healthcare legislation where congrssional members from both houses and the President met to discuss alternatives. Even though the President would not give much on that legislation, at least we saw what appeared to be an attempt to get something done in a bi-partisan basis.

    Was healthcare that much more important than the fiscal health of America that we do not need this same leadership now?

    It could be that we are looking at a lost decade like Japan in the 90′s if these idiots don’t get off their election mode of operating and do something to get things moving.

    1. People are saving and not spending. Why? Uncertain about the economy.
    2. Corporations are not spending and using capital to buy backl stock to increase the stopck prioce. Why, uncertain about the economy.
    3. Companies are not hiring. Why, uncertain about the economy.
    4. Banks have more capital today than ever but not lending. Why, government regulations that require better credit ratings and uncertain about economy.

    Time for Obama, Reid, Pelosi, Boehner and McConnell to do something and get rid iof the uncertainity.

  2. RP in response:

    1) People are not spending but also not saving as much. The middle class simply has less money overall.

    2) According to S&P, Corporations spent $409Bn in 2011 on stock buybacks, and $298.8 in 2010. Side note: Healthcare and Energy companies led the charge on that, go figure.

    3) Companies are not hiring for the one and only reason they don’t hire, there isn’t enough demand to justify new employees. See #1.

    4) Banks are not lending to people because they don’t want to, not because of govt restrictions. Govt determines captial and reserve requirements, but that is not why BofA and Wells Fargo don’t want to give me an auto loan. They have simply decided to up their own requirements after having been burned before and have shifted their revenue models to aquisitions and squeezing fees out of their customers. The traditional revenue model for commercial banks has veered away from loans to everyday people in light of deregulations allowing them to mix their assets with investment banking strategies. I suppose we can blame THAT on the govt, but ultimately its been the free markets decision to not lend to people in general.

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