Monday, September 6, 2010

Is The Private Job Market Getting Weaker?

The loss of 114,000 temporary Census workers in August and a small gain in private employment continues the sub-par performance of the labor market. The 67,000 private jobs gained is much smaller than the 241,000 jobs gained in April, which may signal that the private sector job market is weakening. See the following post from The Capital Spectator.

Nonfarm payrolls retreated by a net 54,000 last month (seasonally adjusted) and the unemployment rate ticked up to 9.6% from 9.5% in July, the Bureau of Labor Statistics reported this morning. The payroll loss for August isn’t as steep as the 100,000-plus decline that economists expected, but that’s cold comfort for a labor market that’s still struggling to grow. But there’s better news once we focus on the net change for private-sector payrolls, which posted a 67,000 rise—comfortably above the consensus forecast of a 44,000 gain. Better, but unimpressive.

Why emphasize non-government payrolls? We must ignore the headline figure because the government laid off 114,000 temporary Census workers in August. After dismissing that statistical glitch, here’s how the monthly net change in private sector nonfarm payrolls has unfolded:

Private-sector job creation has managed to climb above zero this year, as graphed above, but at a disturbingly low rate. The average gain so far in 2010 is under 100,000 per month. That’s a dismally low figure given the steep losses in jobs in recent years and, more importantly, what’s required to keep the economy humming in the months ahead. As troubling as that is, the trend of late suggests that job creation in the private sector may be weakening. Indeed, last month’s 67,000 net rise in private payrolls is down sharply from July’s 107,000 rise and an even smaller fraction of April’s 241,000 burst higher.

Consider, too, that the bulk of last month's net rise of 67,000 jobs in the private sector was due primarily to hiring in health services, according to the government's breakout of the data. There's nothing wrong with that, and it's certainly welcome. But the health industry is hardly a cyclically sensitive corner of the job market/economy. The implication: last month's private-sector hiring had little to do with upside momentum in the business cycle. In fact, manufacturing-related employment, which is cyclically sensitive, shed 27,000 jobs last month, reversing most of July's 34,000 gain in this corner of the economy.

Feeling inspired yet? I’m not. Certainly there’s scant evidence that the labor market is improving on a meaningful basis. You can, however, argue that it’s treading water, echoing the trendless trend in initial jobless claims this year.

Yes, fears of a double-dip were probably exaggerated. We’ve been arguing all along that the economy was likely to "muddle through" and avoid an outright contraction in the second half of this year (as noted here and here, for instance).

But the outlook for subpar growth and weak job creation—although superior to a new recession—is a real and present danger, and today's employment report doesn't offer much reason to dismiss the danger. If the economy continues to struggle, eventually the risk of a recession will become more than a low-probability prediction.

This post has been republished from James Picerno's blog, The Capital Spectator.

No comments: