October Jobs Report Shows Slight Improvement

Unemployment and underemployment are down and payrolls are up, according to the latest report from the U.S. Department of Labor. Unemployment dropped .1% to 9.0% for the month; however, the number of unemployed hasn’t strayed more than two percentage points from this level in seven months. Despite improvement, the numbers are not as high as predicted and are still far too low considering population growth. While private-sector payrolls are up construction and government payrolls saw an overall decline, which does not bolster predictions of economic recovery. For more on this continue reading the following article from Tim Iacono.

The Labor Department reported that nonfarm payrolls increased by 80,000 in October after an upwardly revised gain of 104,000 in August and 158,000 in September as the jobless rate fell from 9.1 percent to 9.0 percent.

While the October payrolls gain came in slightly below consensus estimates, total upward revisions of 102,000 for the prior two months helped to offset this disappointment, however, the U.S. labor market continues to add jobs at a pace that is failing to keep up with the growth in the population, payroll gains averaging just 90,000 over the last six months and 123,000 so far this year.

The unemployment rate was little changed last month and has now stayed within a narrow range of between 9.0 percent and 9.2 percent for the last seven months. The number of unemployed persons fell from 14.0 million in September to 13.9 million in October while the number of long-term unemployed fell by 366,000 to 5.9 million, or 42.4 percent of total unemployment.

The broader U6 measure of underemployment (including discouraged workers and those settling for part-time work instead of full-time work) fell from 16.5 percent to 16.2 percent and the civilian labor force participation rate was steady at 64.2 percent.

Private sector payrolls increased by 104,000 in October paced by gains of 35,000 in trade, transportation, & utilities and 32,000 for professional & business services, almost half of which were new temporary positions. Education & health care services added 28,000 jobs and there were 22,000 new positions in leisure & hospitality.

Some 20,000 fewer jobs at the state level paced an overall decline of 24,000 in government payrolls and a net reduction of 22,500 in nonresidential construction jobs drove the construction category sharply lower.

Overall, this report is consistent with the recent “slow growth” performance of the U.S. economy where economic activity is, basically, just keeping pace with population growth but nothing more.

This blog post was republished with permission from Tim Iacono.

Acceptance No Answer to US Economic Turmoil

Mark Thoma takes issue with economist Mark Spence’s determinative view that Americans must not only consume less, but expect less. Spence feels that international distributional effects have left little room in the low- and middle-class job market, and people must accept it. Thoma argues that while the pre-2008 bubble was responsible for gilding expectations, it is the poor investment of monies and resources into the financial market that is the true distribution problem. According to Thoma, the proper investment of wasted billions back into the jobs market could create growth and employment. For more on this continue reading the following article from Economist’s View.

Michael Spence:

The Global Jobs Challenge, by Michael Spence, Commentary, Project Syndicate: ...The third challenge is distributional. As the tradable part of the global economy (goods and services that can be produced in one country and consumed in another) expands, competition for economic activity and jobs broadens. That affects the price of labor and the range of employment opportunities within all globally integrated economies. Subsets of the population gain, and others lose, certainly relative to expectations – and often absolutely.

Many advanced countries – in fact, most of them – have experienced limited middle-income growth. ... In the United States, income inequality has risen as the upper end of the income and education spectrum benefits from globalization, while the rest experience declining employment opportunities in the tradable sector. ...

What does it mean – for individuals, businesses, and governments – that structural adjustment is falling further and further behind the global forces that are causing pressure for structural change?

Above all, it means that expectations are broadly inconsistent with reality, and need to adjust, in some cases downward. But distributional effects need to be taken seriously and addressed. The burden of weak or non-existent recoveries should not be borne by the unemployed, including the young. In the interest of social cohesion, market outcomes need to be modified to create a more even distribution of incomes and benefits, both now and in inter-temporal terms. ...

None of this will be easy. ... Nevertheless, the unemployed and underemployed, especially younger people, expect their leaders and institutions to try.

I don't like the call to accept that things will be worse in the future, and to get used to it. It is generally based upon the idea that much of our growth was due to the bubble - it was false growth -- and hence led to the perception that we can grow faster than is actually possible.

But if the resources hadn't have been invested in the financial industry, they wouldn't have been wasted, they would have gone elsewhere. If we had taken all the resources (and talent) that went into the financial sector and directed it elsewhere, it would have promoted growth and employment -- and likely of a far more stable and broad-based variety. In my view the challenge is to redirect these resources into productive uses, and to fix the mal-distribution of income gains. But simply accepting that expectations need to adjust downward -- that the fate of the middle and lower classes is a diminished future -- is not acceptable. We can do better than that.

This blog post was republished with permission from Mark Thoma.

Small Businesses Struggle, Labor Stats Sink

Analysts are drawing a connection between new Bureau of Labor Statistics numbers and a job market that appears ready for a double dip. Comparing the number of jobs generated by small businesses and start-ups during the last recession in 2001, statistics confirm that more jobs are being lost now as small businesses struggle to open or stay open. A survey conducted by the National Federation of Independent Businesses indicates that earnings trends for small business owners are in the negative and unlikely to recover as consumers slow spending. For more on this continue reading the following article from Money Morning.

After showing some improvement over the past year, the U.S. job market is now beginning a double-dip.

The reason is simple: The number of start-up businesses has hit its lowest level since at least the early 1990s.

Indeed, small businesses are the main drivers of job growth and no amount of stimulus can compensate for their absence.

For instance, between the recession that ended in late 2001 and the start of the most recent recession in late 2007, businesses that employed fewer than 500 workers added nearly 7 million employees, according to ADP payroll services. Larger businesses cut nearly 1 million employees in that period.

However, in the 12 months through March of last year, just 505,473 new businesses started up in the United States, according to the Bureau of Labor Statistics (BLS). That's the smallest number since the BLS began tracking the data in the early 1990s.

That's not all.

Businesses with fewer than 50 employees added just 27,000 jobs in May, compared to 84,000 in April and more than 100,000 in December and January.

So it's not surprising that the national unemployment rate in April climbed for the first time in six months to 9%. And after falling as low as 8.8% in March, the unemployment rate rose even higher in May, to 9.1%. Employers added just 54,000 workers in May - the smallest number in eight months.

Much has been made of the fact that many larger businesses say they plan to increase hiring during the months ahead, but that tide is beginning to turn. Optimism among U.S. chief executive officers in the second quarter actually fell from a record high in the first quarter, according to the Business Roundtable's economic outlook index.

The index decreased to 109.9 for the April-June period from a record high 113 reading in the previous three months. The Business Roundtable is an association of executives of corporations representing a combined workforce of more than 13 million employees and almost $6 trillion in annual revenue.

But what's worse is that small businesses are even more disillusioned.

In fact, a national survey of small business owners, released yesterday (Tuesday), showed declining optimism among owners of small businesses - the third straight monthly drop. That survey was conducted by the National Federation of Independent Businesses and polled 733 small businesses across the country.

"Only the big banks and the big manufacturers are winning," the NFIB said. "Earnings trends for small business are distressingly negative and the recovery is two years old."

Indeed, the biggest reason for the pessimism among small businesses is that U.S. consumers - who have been battered by tumbling home prices, tight credit, and exorbitant gas prices - aren't spending enough. Retail sales fell 0.2% last month, the U.S. Commerce Department said yesterday.

Of course, Money Morning Contributing Editor Martin Hutchinson has another explanation. He blames the worsening job picture on Washington's faulty policies.

"Washington's fiscal stimulus - including the government dumping nearly $1 trillion into such unproductive pursuits as ‘new energy' projects and state employee labor union contracts -- has generated massive budget deficits and given banks no incentive to play its key job-creation role by lending to small businesses," said Hutchinson. "Instead, the stimulus has provided temporary jobs with the government -- and those jobs are now disappearing as Washington's money runs out."

This article was republished with permission from Money Morning.

The Expectation Is That Job Expansion Is Near

The last weekly update on economic claims contained a glimmer of hope with a decrease in new unemployment filings. The trend of declining new jobless claims is often a leading indicator of the return of job growth as firms anticipate improving economic conditions. See the following post from Capital Spectator.

Today’s weekly update on new jobless claims offers a reprieve on the darker visions conjured on these pages in recent weeks, including here. New filings for unemployment benefits dropped last week to by 29,000 to 469,000. Whew, that was a close one! But the risk for this series that we’ve been discussing lately is still with us, even if the latest report offers some breathing room for thinking positively.

The good news is that there was no follow-through on the recent rise in new jobless claims, at least not yet, as our chart below shows. The charitable interpretation, bolstered by today’s number, is that it was all a statistical quirk; a February fluke caused by the heavy snows last month. Or maybe it was the normal short-term volatility that tends to plague this dataset. But while there’s a slightly stronger case for arguing that jobless claims aren’t set to rise, there remains the more pressing question of when this series will resume falling?

It’s going to take weeks to answer that question. In the meantime, we’re left to wonder if jobless claims have hit a floor, temporary or otherwise. If that proves to be the case, that’s almost as troubling as watching claims rise because it would suggest that the labor market’s recovery, already weak if not feeble, may be facing more stress than previously realized.

Watching jobless claims, while hardly a silver bullet, is among the early warning signs of things to come. Recent history appears to back up the idea that initial claims offer a clue of what’s coming for the business cycle and the labor market. The fact that jobless claims were falling for much of last year was a sign that job destruction in nonfarm payrolls was slowing and that the GDP contraction had ended. That's hardly unique to the present cycle, as we've discussed. The forward-looking ability in jobless claims is well understood in the dismal science, as noted, for instance, in a St. Louis Fed report from a few years ago. Meanwhile, economics professor Todd Knoop explains in Recessions and Depressions,

Initial unemployment claims are more sensitive to changes in the business cycle than total unemployment. Unlike total unemployment, which lags peaks and troughs because of lags in the hiring process, initial unemployment claims are a leading indicator because firms anticipate changes in economic conditions and increase layoffs before production and decrease layoffs before conditions improve.

Where does that leave us with the latest numbers? Watching, waiting and worrying. Initial jobless claims appear to be at a crossroads. "Firing activity has largely tapered off, but new hiring has yet to pick up, Zach Pandl, an economist at Nomura Securities International, tells Reuters. That's not inherently troubling, except when you consider the current context: an unusually long stretch of non-recovery in the labor market, i.e., job growth.

Ethan Harris, head of economics for North America at Bank of America/Merrill Lynch, opines in a Bloomberg TV interview that “we are in this limbo state where it is not clear if job growth has started yet.” But he's hopeful and predicts that the limbo will give way to expansion, explaining: “Many companies say they over-reacted and fired a lot of people, more than they needed to, with the news of the recession. So, we’re expecting broad-based re-hiring.”

But the future is one thing, and the here and now is something else. At the moment, the labor market seems to be betwixt and between, neither contracting nor growing. The expectation is that expansion is near. We'll learn in tomorrow's jobs report for February if near is now.

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

How Washington Can Help The US Worker

As job losses continue and the unemployment rate remains high, the claim that the first economic stimulus package helped create long-term jobs is heavily disputed. Eric Jackson from The Street says that helping existing businesses remain competitive and thereby reducing the need for redundancies would be a better route to take. See the following post from The Street.

With last Friday's announcement that the economy lost another 85,000 jobs in the month of December and an unemployment rate still above 10%, renewed pressure is on the federal government to create jobs.

However, the truth is that it can't create any new jobs -- at least ones that are going to last beyond any short-term project. A new study shows the government's efforts had virtually no impact on changing the jobless rate.

We endlessly hear about the unemployment rate and the need for jobs. Many economists and politicians are now talking about the need for more jobs and a second stimulus. However, we need some clear headedness about this discussion.

What exactly can government do to fix this problem of too many unemployed or under-employed? I think the honest answer is not much directly or immediately. It can only create jobs in the long term and indirectly, through following policies that enable businesses to better compete.

The government passed a $700 billion TARP program to aid the country's financial institutions in the fall of 2008. By measure of the fact that all the big banks and brokers are still around today, with much of the money repaid to the American taxpayer, this program was a success.

We can quibble about whether the big banks such as Citigroup(C Quote), Bank of America(BAC Quote), and Wells Fargo(WFC Quote) are lending enough or how much Goldman Sachs(GS Quote) and Morgan Stanley(MS Quote) are paying their top performers, but the fact remains that these institutions are still standing today. We weren't so sure they would be 12 short months ago.

On the heels of the TARP program, the government passed a $789 billion first stimulus program. The money, although large, was seen by leading economists, the Federal Reserve chairman, virtually all Democrats, and many Republicans as necessary to reviving the struggling economy.

As of today, only half of this money has been spent ($400 million). The reason for this is that, even with the best of intentions, government can rarely directly inject money (and jobs) into an economy.

Politicians give primary importance these days to getting re-elected and the way to do this is through seeming to respond to the top needs of their constituents. When the first stimulus was passed, politicians could slap themselves on the back and say they'd addressed the problem of the weak economy. The press also moved on to other topics, rather than continue to follow up on just what this money had been spent on and how effectively that stimulus had resulted in jobs.

This week, the Associated Press, to its credit, did some investigative reporting. It looked at specific construction projects that were part of the first stimulus and how well they did at creating jobs -- and reducing unemployment -- in those counties. It turns out -- and their findings were validated by five economists -- that there was no correlation between dollars spent and those counties seeing a lower unemployment rate.

The president and his team continue to point to 1.6 million as the precise number of jobs which the first stimulus is responsible for saving or creating. However, the AP found that most economists agreed that it was virtually impossible to tie monies spent as part of the 400-page law to specific job outcomes in order to be able to cite a specific number of jobs created or saved.

The White House has also recently determined that they can identify certain jobs as being "stimulus-saved jobs" even if they were never at risk of being lost.

When it comes to coming up with new projects, such as repairing roads, it might take months from the time a bill is passed until a job actually begins -- and that's assuming that there are delays from zoning or other planning requirements, which is more often the case. Even when these government-sponsored projects start and jobs are created, they are so insignificant when compared to the other jobs that are being lost in those same areas.

Here are implications from this one study, as we prepare to hear politicians sell us on the idea of a second stimulus.

• Just spending billions of taxpayer dollars on government programs that aren't defined is likely to be a wasted effort.

• We should only spend money in areas which have been shown to clearly make an appreciable difference to lowering unemployment.

• If you're going to start a construction project, it should have a definable purpose (as opposed to the "bridge to nowhere") and it should start immediately, not three years from now.

• State support is likely (although, again, I've seen no hard studies on this) one effective way of keeping real jobs. Many states and counties are simply running out of money at the moment. If the federal government can keep a police officer on the job, where he or she would otherwise be unemployed, that's a tangibly positive outcome.

The federal government should be intellectually honest that it can do little to actually create jobs (at least permanent ones). Instead, its role must be to continuously support businesses to feel confident enough to create jobs themselves. At the moment, that confidence is lacking.

The honest truth is that I don't know how to help a 55-year-old father of five from Lexington, Ky., who just lost his manufacturing job, find his next job. He's probably not going to get "retrained" by the government and find another manufacturing job easily. He's certainly not going to be first in line to get one of the exciting-sounding "green jobs." I don't think any politician -- Republican or Democrat -- has any idea of what to do to help this guy.

But there are a lot of people like this out there today -- too far along in their careers to restart, with too little money to retire.

This guy is realistically on his own to find his next job. He needs a government to help increase the safety net of services like food stamps to help, and one to help businesses across the country to feel more confident, but he doesn't need another stimulus program that the politicians congratulate themselves about which leads to nothing for him.

This post has been republished from The Street.