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Braking for jobs?



March employment gains were less than expected, less than exciting, less than worth writing home about and will again pose the question of whether U.S. job creation is about to slow as summer months approach. Such a pattern occurred during the past two years.

The American economy added 120,000 net new jobs during March, sharply below the consensus view of 205,000 net new jobs. The gain was the smallest in five months and was less than half the average gain of the three prior months.  In addition, previously reported job gains during January and February were revised higher by only 4,000 jobs, breaking a pattern of sizable upward revisions to prior data that had largely been in place for some time.

Better news saw the nation’s unemployment rate decline from 8.3 percent in February to 8.2 percent in March. The rate declined because an estimated 164,000 people, presumably discouraged at the prospect of finding a job, dropped out of the labor force in March.

The household survey, from which the unemployment rate is derived, also reported a decline of 31,000 employed people in March.  One lumps various numbers together to arrive at the 8.2 percent rate.

Much weaker-than-expected employment data in March validated recent views of Federal Reserve Chairman Ben Bernanke that the prior pace of more solid job gains could not be sustained unless and until U.S. economic growth picked up.  In a presentation on March 26 (to a room full of economists no less!), Bernanke stated that recent employment gains had been a “welcome development.”

“Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks," Bernanke said. "We cannot yet be sure that the recent pace of improvement in the labor market will be sustained.”

Job Detail

The 120,000 net rise in employment, for a change, did not include a major hit to estimated state and local government employment (I will come back to that).  The private sector added 121,000 net new jobs in March, led by the addition of 31,000 new jobs in goods production.

Manufacturing continued its promising stretch of new job creation.  The addition of an estimated 37,000 net new jobs in March sees total manufacturing employment up by 470,000 jobs since January 2010, according to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS).  The construction sector (down 7,000 jobs) and logging & mining (up 1,000 jobs) were less newsworthy.

The nation’s private service providing sector added 90,000 jobs in March, led by the addition of 39,000 net new jobs in leisure & hospitality; 37,000 net new jobs in education & health services; and 31,000 jobs in professional & business services.  According toBLS, employment in professional & business services has climbed by 1.4 million jobs since reaching a low point in September 2009.  In contrast, the retail trade sector lost an estimated 34,000 jobs in March, the largest monthly decline since October 2009.

State & Local

Local government payrolls have now reached their lowest level in six years, a sign that municipalities still face fiscal strains almost three years after the end of the recession, according to a Bloomberg.com story.  The total of 14.1 million local government employees is the smallest since February 2006.

State government payrolls, less tied to the sluggish nature of property taxes, rose for the third month in a row to 5.1 million.  The streak of job gains was the longest since 2008.  Both sectors will likely stay under pressure as the combined pace of tax collections in 2011’s final quarter was the weakest in a year.  Total employment within the state & local government sector has fallen by 640,000 positions since 2008.

8.2 percent…or 11.3 percent?

The substantial decline in the nation’s labor participation rate continues to “understate” the painful level of unemployment, when compared to just four years ago.  An estimated 66 percent of potential workers were either employed or seeking employment in 2008.

That share in March 2012 was down to 63.8 percent.  Simply applying a 66 percent rate to the March data would suggest an unemployment rate of not 8.2 percent (as reported)…but a much different 11.3 percent rate!!

We have noted before that if we could somehow get three million more people to leave the estimated labor force, national politicians could brag of a 6.4 percent unemployment rate…but does that mean anything??

…I leave this to your interpretation

Other Employment Detail 

The nation’s “underemployment rate”…that which includes the officially unemployed, those working part-time who would prefer to work full-time, and those discouraged workers who are not formally seeking a job but would accept one if offered, declined from 14.9 percent in February to 14.5 percent in March.  A 400,000 decline in those able to move from (involuntary) part-time jobs to full-time jobs (8.1 million to 7.7 million)…a very positive development…primarily accounted for the drop

Average hourly earnings for all employees on private nonfarm payrolls rose by five cents (0.2 percent) to $23.39.  The rise of 2.1 percent during the past 12 months trails the 2.9 percent consumer inflation rise of the past year

Challenges Ahead…and Some Clarity

The desire for strong job gains over the balance of the year will be met with significant challenges.  Five consecutive sessions of the Dow Jones Industrial Average losing ground validates this view.

The European fiscal situation promises to get worse before it gets better, with the focus now quickly shifting to Spain.  In addition, greater scrutiny is now entering new locales such as the Netherlands.  French financial challenges are again raising more eyebrows.

U.S. economic growth has now been positive for 11 straight quarters.  That being said, the current economic recovery is the weakest since the 1940s.  Growth forecasts for this year still center near 2.4 percent after inflation – simply pathetic giving the unprecedented and massive amount of fiscal and monetary stimulus at play in the economy.

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Jeff Thredgold
The Tea Leaf is a weekly economic and financial update by Jeff Thredgold, economist for Vectra Bank Colorado. He has been writing an economic update every week for the past 31 years and is the only economist in the world to have received the designation of CSP, or Certified Speaking Professional. Republished with permission from the Tea Leaf by Jeff Thredgold, whose site address is www.thredgold.com/html/leaf.html.

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