A review of the latest U.S. unemployment situation from various sources does not provide much hope for a quick recovery of the U.S. economy. This realization exaggerates the impression by a number of market experts that a recession may be on the horizon.
“Deteriorating June U.S. job numbers point to recession. … Month after month, U.S. job numbers disappoint. It is becoming increasingly apparent the U.S. economy is not improving; it is deteriorating,” said Michael Lombardi, a market expert and chartered financial planner, in a July 6 article on the Profit Confidential website.
There are other market experts who suggest the latest unemployment numbers do not dispute a slight improvement in the U.S. economy.
James Picerno, a financial journalist, said in a June article on the Seeking Alpha website that one should not throw in the towel because of some weak employment numbers. One should ask whether an economic recovery, or in reverse, a recession, arises from a country’s job situation.
All one can say at this point is that employment growth is persistently not moving in the right direction.
“You can’t rely on one indicator for reading the broad economic trend. … Growth is weak, but so is the argument that we’re falling off a cliff,” Picerno said.
Dr. Kent Moors, a global oil and energy market consultant, calls the employment numbers unreliable, as the various reports come out with different numbers, using different methods. Experts suggest that using different methods should not change the end result if the data used for calculating the numbers is reliable.
“Employment is just about the worst yardstick to use in gauging economic recovery. Jobs data are universally recognized as the most lagging indicator there is. Employment levels turn positive only after a recovery is already in place,” Dr. Moors said on the Oil & Energy Investor website.
How Many Jobs Needed for Recovery?
How many jobs need to be filled to return to a November 2007 unemployment rate of 4.7 percent?
According to a 2012 Brookings Institution report, 125,000 jobs per month or 1.5 million jobs annually are needed to maintain the 4.7 percent unemployment rate.
“As of February, our nation faces a jobs gap of 11.4 million jobs, 5.2 million from jobs lost since 2007, and another 6.1 million jobs that should have been created in the absence of the recession,” according to Brookings.
On the pessimistic side, the U.S. economy needs to create 208,000 jobs a month, which was the monthly average number of jobs created during the best year in the 2000s, for the job gap to be closed by 2020, according to Brookings. Looking at a four-year timeline by which the economy could return to a more desired employment rate, 321,000 jobs per month need to be created.
“The jobs gap calculations suggest that even policies whose benefits take years to be realized may not come too late to help workers impacted by the Great Recession,” the Brookings article said.
A June report by the Federal Reserve Bank of Atlanta suggested a hypothetical job creation scenario. The numbers are based on an assumed 63.8 percent labor force participation rate. In 2012, given an unemployment rate of between 8 percent and 8.2 percent (the present unemployment rate), the economy needs to add an average of between 101,000 and 142,000 jobs monthly.
With an unemployment rate of between 7.5 percent and 8 percent, the economy needs to add an average of between 115,000 and 154,000 jobs monthly during 2013. With a rate between 7 percent and 7.7 percent, the United States needs to create an average of between 123,000 and 157,000 jobs during 2014.
“Overall, the hypothetical job growth based on SEP [Summary of Economic Projections] projections looks reasonably consistent with the employment experience of the last year and a half or so,” the Reserve Bank report said.
Evaluating Recent Numbers
“Investors are not happy with the dismal employment report. … Investors sold off stocks in industries which are particularly vulnerable to a slowdown in employment. Banking stocks, the construction industry and professional staffing firms came under significant pressure as investors are pricing in a significant slowdown in the economy in the coming months,” a June article on the Seeking Alpha website said.
The U.S. Bureau of Labor Statistics (BLS), Automatic Data Processing Inc. (ADP), Gallup Inc., and the Trim Tabs Money Blog provide job growth information and each appears to provide a different result.
The BLS report on July 6 indicates that the number of unemployed people was 12.7 million and the unemployment rate was at 8.2 percent, the same as in May and March, versus 9.1 percent in June 2011. The number of long-term unemployed, those who have been jobless 27 or more weeks, was 5.4 million and 41.9 percent of the unemployed. Overall, 58.6 percent of the U.S. population holds a job.
The ADP report suggests that 176,000 jobs were filled during June with the majority of jobs created by the service sector (160,000) and small businesses (93,000). However, this report does not clearly state unemployment numbers, but rather relies on inference.
“The gain in private employment is strong enough to suggest that the national unemployment rate may have declined in June,” said Joel Prakken, chairman of Macroeconomic Advisers, LLC, in the ADP report.
Gallup reports that the U.S. unadjusted unemployment numbers remained static in June. Gallup’s unemployment rate was at 8 percent, just .2 percent below BLS’s 8.2 percent. The U.S. underemployed number, which includes the part-time employed and those who couldn’t find employment based on their education and experience, decreased from 18 percent in May to 17.5 percent in June. The underemployment rate is the lowest since November 2010.
“The employment situation in the U.S. remains fragile, which is reflected in the pullback in reported hope for a job,” the Gallup report said.
Referring to a consumer confidence survey, Gallup said, “Job seekers may be reacting to less-than-optimistic discussions of the economy by the news media,” suggesting that economic and other factors could influence expectations, even for just a short period of time.
The Gallup Economic Confidence Index dipped from an average of -17 in May to -22 in June. The confidence level was affected by an increased negative perception by Americans with annual earnings at or higher than $90,000. During the week ending June 24, the confidence level dipped to -26 and then rose back to -23 the following week.
“While much improved compared with last summer—when political conflict over raising the federal debt ceiling and mounting European economic troubles sent the U.S. stock market and consumer attitudes tumbling—Americans’ confidence remains more negative than positive,” the Gallup Economic Confidence Index report suggested.
The Trim Tabs Money Blog suggests that only 75,000 jobs were filled in June, far from the suggested 100,000 to 125,000 jobs predicted in earlier publications.
The report stresses the importance of liquidating foreclosed homes before the economy can improve. Also, if wages increase at least by 3 percent or 4 percent, consumers should have enough discretionary income to buy more products.
The Trim Tabs report asks, “Why is job growth so anemic? Because the economy is still in the process [of] purging the mal-investments left over from the bursting of the housing bubble, destroying wealth and contracting credit.”
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