Friday, June 1, 2012

May Jobs Report—What it means

The Bureau of Labor Statistics said today that the country added only 69,000 jobs in May (compared to an average gain of 226,000 per month during the first quarter) and the unemployment rate ticked back up to 8.2% from 8.1% due to an increase in the number of people looking for work.  The latter had been expected.  People who give up looking for work and drop out of the labor force usually return once the job market appears to be improving.

Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction.  Other areas remained largely unchanged.

Unemployment among adult men (7.8%) and adult women (7.4%) were up slightly for April.  Unemployment among teenagers (24.6%), Blacks (13.6%) and Hispanics (11%) remained high as did the number of long-term unemployed which rose from 5.11 to 5.4 million.  The long-term unemployed (over 26 weeks) now account for more than 40% of the unemployed.

The good news is that the private sector continues to add jobs but not at a rate sufficient to make much difference in the unemployment rate.  Also, the state and local government continue to lay off workers making the jobs recovery even more difficult.

This recession appears to be following the pattern of the last two recessions.  Traditionally during a recession we would see a “V” shape sharp decline followed by an equally sharp recovery once the recession ended.  In this recession like the last two in the early 1900s and early 2000s, has followed more of a “check mark” shape with a sharp decline followed by a gradual recovery.

Several things seem to be causing the slow recovery.  First, the impact of the 2009 stimulus is now almost entirely gone and we are seeing the consequences of not enacting a second stimulus to aid the recovery which most mainstream economists had urged.  Second, during this recession businesses have been able to introduce a substantial amount of new technology and to demand more from existing workers.  As a result, we have seen sharp productivity gains.  Demand has not returned to a level in many industries where businesses are forced to hire more people.  In fact, the average workweek in May for all employees actually DECLINED slightly to 34.4 hours.  We are not going to see major improvement in jobs until the average workweek starts climbing again.  That will not happen until demand improves.  Again, it is why we have needed a second stimulus to pump more demand into the economy.  Ironically, the U.S. government continues to be able to borrow at extremely low interest rates which would have made it relatively easy to fund a second stimulus (10-year Treasury notes hit a record low of 1.54 percent on Thursday).  Finally, the economic situation in Europe is not helping.  Businesses with European operations are seeing their revenues/sales fall and are nervous about the future.  Indeed, the deteriorating situation in Europe, particularly in regard to Greece, Spain and Italy, which is a product of an over reliance on austerity rather than stimulus and growth measures, threatens the U.S. recovery.
Obviously, the sluggish jobs recovery is bad news for Obama and good news for Romney but it is too early to say how great an impact it will have on Obama’s chances for re-election.  Right now the race is tight in the popular vote but Obama retains a substantial lead in the Electoral College vote, which is what really counts.  I don’t think we will have any clear indication of how this election will turn out until after Labor Day and perhaps not until the end of September.  If the jobs picture remains close to 8% and, particularly if the trend is flat or not improving, then Obama may be in real trouble.  Unfortunately, the only thing Obama could do to change the situation would be to pass another quick stimulus which is not remotely possible. 

See the full BLS report here:

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