Let me get this off my chest. This report sucks. The majority of job creation came from Census hiring -- the private sector was non-existent.
Let's look at the data:
The civilian labor force decreased by 322,000 and the number of unemployed decreased by 287,000. This lowered the unemployment rate to 9.7%.
The labor force participation rate decreased .2% because of a drop in the number in the civilian labor force.
The employment to population ratio decreased .1%.
This means that fewer people participated in the labor force last month and the percentage of people employed as a percentage of the civilian labor force decreased.
Total private jobs created were 41,000. Goods producing industries increased 4,000, with an increase in manufacturing and mining offset by a drop in construction.
Service employment increased by 37,000. With the exception of financial services (which decreased 12,000), all sectors saw growth. Just not much growth.
Simply put, the private sector dropped out of the equation last month. Period. Unfortunately, this report comes at the worst time possible -- when the markets are already shaky. In addition, the initial unemployment claims numbers -- which have dropped the last two weeks -- are still high. This is not a good combination.
Several weeks ago, I wrote an article titled Storm Clouds on the Economic Horizon. In that article I wrote the following:
[Going forward] the economy needs to keep up its current pace of job creation. Last month we had a great employment report. That needs to be repeated in the next report.
This is the worst possible jobs report we could have in the current environment. Now -- this is just one report. The record indicates things are moving in the right direction; this could be nothing more than a speed bump. But, this is a most ill-timed speed bump.
11 comments:
This report was a major disappointment. Companies really don't need many workers or seem
reticent to plan for such in the future.We cannot have double dip
and if that specter starts to emerge plans will need tobe made.
The report is very bad news. Even though its only a one month report, it should be taken seriously since we saw GDP growth fall significantly in the second quarter.
With budget deficit cutting fever on Capital Hill and States going to fire hundreds of thousands of government workers next fall, a double dip recession is now very likely. Actually, if we do have a double dip recession, then the combined downturns of 2008 and 2010 could cause economists to label it a depression.
One big problem is that people have no confidence in the Obama administration. The BP oil spill has reinforced the view that Obama is a political amateur very much like Jimmy Carter was. I think this is an unfair view, but that's the view. This lack of confidence in Obama's leadership adds pessimism in the economy, and this negatism can become a self-fulfilling prophesy.
Another problem is that much of Obama's economic agenda remains stuck in Congress. This has created great uncertainty. We don't even know whether we are going to have an estate tax this year, and what the estate tax rates will be next year. My bet is that Congress will fail to act and the estate tax will go back to 2000 rates, and the best estate plan for this year is to commit suicide. The lack of uncertainty has kept investment activity down.
Overall, I think Obama's presidency is now at a turning point. One path leaves to a trajectory that Reagan followed. Probably a harsh midterm elections, but a strong general election. The other is a Jimmy Carter trajectory, which will lead to another 30 years of Republican dominance. I give each trajectory even odds.
Clarification of my previous comment: The second quarter slower GDP growth of 3.2% I mention, is refering to the fiscal year rather than calendar year. Thus, I'm refering to the first quarter of the calendar year of 2010.
I hope that Bonddad is right and that we are on the verge of a robust economy, but the continuing weak weekly initial claims report (stuck around 460,000 new claims a week), the slower GDP growth and the poor May jobs report, suggest that at best we are in a jobless recovery.
I'm going to ask a dumb question from someone who doesn't know that much about economic models:
Let's say the economy is completely stagnant with 9-10% unemployment. Well, what would be a classic response from a lot of Keynesians? It would be to hire a bunch of temporary workers to boost demand. Isn't the Census a semi-accidental job works program under these circumstances?
I guess my point is that, yeah, the 400K jobs isn't exactly a new FDR jobs work program and the Census jobs aren't private sector jobs. But aren't they stimulative to the economy.
This has been such an up and down recovery like you mentioned way back. One month it's great the other month it's terrible...hard to get a sense of any sense of traction.
Also, just to point any even remotely positive aspect to any of this was that temp workers are still increasing which surprises me and hours worked/wages seem to be doing pretty well.
Keynesians say that temporary job hiring can permanently help the economy because of the multiplier effects. Although the jobs are temporary, the extra income these temp. workers will recieve, will allow them to spend more money. This will help retail business, and they will hire more workers. The new hiring will in turn stimulate the economy, and so on and so on.
My problem with this theory is we can turn this around and say that next month a whole lot of people are going to get fired. Then will the reverse happen?
Mainstream economists will probably say that temporary tax cuts and jobs don't effect the economy all that much. Many agree with the "Permanent Income Hypothesis" which states that most people make consumption decisions out of their permanent income streams rather than one time increases or decreases in their income. Thus, most economists would reject the notion that temporary hiring will effect the economy by that much.
Yeah. The markets today recognized how bad this news really is. And the fact is that if the census info was being properly reported it would be a smaller number. So many are hired then fired. And I've even heard thar some hired again.
If they were actually producing something than maybe it would be worth it but they aren't.
@ Esong:
Not to be a pain, but I wanted to focus on this sentence: "Many agree with the "Permanent Income Hypothesis" which states that most people make consumption decisions out of their permanent income streams rather than one time increases or decreases in their income."
How does this explain the fact that unemployment compensation has a stimulative effect on the economy (or at least acts to mitigate the drag on the economy of a layoff)? And how are Census wages different? I mean, aren't these folks trying to scrape by and therefore have to actually spend their paycheck and not save it?
@goldtracker
In all fairness last months number was much much better than this one and the market still sold off big anyways.
Many economists would argue that unemployment compensation can help the economy because many of the unemployed are liquidity constrained. The Permanent Income Hypothesis assumes that people can smooth their consumption profile by borrowing and lending. However, the unemployed may not have access to the lending markets, so unemployment compensation would increase total spending in the economy.
However, I think the data suggests that temporary tax cuts don't work, which suggests that the permanent income hypothesis has validity, at least to most of the population. Thus, the best way to stimulate economy is to help the poor and unemployed. I would also include investment type spending, such as spending on education and infrastucture would also have a stimulative effect. However, I would say that this is a minority view among the economics profession.
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