Private Sector Results
The private sector added 83,000 jobs, way down from an increase of 251,000 jobs in April (revised down from 268,000). In March, the private sector added 219,000 jobs (revised down from 231,000 and an initial read of 230,000). The private sector job growth over the last three months is certainly respectable, averaging 184,300. That’s good, but hardly great, especially coming out of a deep recession.
The May number was far below the consensus expectations of 180,000 private jobs gained. The downward revisions to previous months is a big shift from what we had been seeing earlier in the year, when we were seeing very big upward revisions. That makes it likely that when the June jobs report comes out, the May numbers will be revised even lower.
This is the 18th straight month that the private sector has added jobs, with a total increase of 1.723 million over the last year. In a normal year, that would be a great showing, but we lost over 8 million jobs in the Great Recession, so we still have our work cut out for us.
Goods-Producing Jobs
Within the private sector, the goods producing sector gained just 3,000 jobs, way down from the gain of 38,000 in April (revised down from 44,000). Over the last year, employment in the goods producing sector is up 234,000. The construction industry gained 2,000 jobs after gaining 5,000 last month. This marks four straight months of construction jobs gained (after revisions).
Construction
The construction industry has been particularly hard hit in this downturn, accounting for about 30% of all the jobs lost, even though at the start of the recession it accounted for less than 6% of the total jobs in the country. As these jobs generally do not require a lot of formal education, the demolition of construction helps explain why the unemployment situation is so dire for those who never went to college. As a male-dominated industry, it also helps explain why this recession has been so much tougher on men than it has been on women.
Employment in construction peaked before the rest of the economy, in April 2006. Since then, we have lost 2.210 million construction jobs. Most of the decline though happened after the overall private sector jobs peaked in December 2007, and since then construction jobs are down by 2.219 million, or 28.5%.
Since the peak, overall private sector employment is down by 6.698 million. In other words, this one industry is directly responsible for 33.1% of all job losses since the end of 2007, even though it was responsible for just 6.47% of all private sector jobs in December 2007.
Manufacturing
Manufacturing lost 5,000 jobs, a sharp reversal from the 24,000 gained in April (revised from up 22,000). Manufacturing employment has been in a secular decline for about 30 years, but it has actually fared pretty well over the last year or so. The peak in manufacturing jobs was way back in July of 1979 at 19.531 million. By the time the Great Recession started in December 2007, the number of manufacturing jobs was already down to 13.740 million.
The low in manufacturing jobs was in December 2009 at 11.456 million, and since then we have gained back 238,000 of those jobs. Still, relative to the start of the Great Recession, manufacturing jobs are down by 2.046 million, representing 30.5% of all job losses from the peak.
Service Sector
The service sector gained 80,000 jobs in the month, way down from an increase of 213,000 in April (revised down from a gain of 224,000) and from a gain of 179,000 in March (revised from 194,000). Relative to a year ago, private service sector jobs are up by 1.489 million, but are still off by 3.719 million from the start of the Great Recession.
One of the biggest contributors to service sector jobs, as always, was the health care industry which added 27,200 jobs. The health care industry has not had a single down-month in terms of employment in the entire downturn. The health care industry has a far higher proportion of women working in it than does the economy as a whole, and this is a big part of the reason that the unemployment rate for women is so much lower than that for men.
Temporary Workers
Of particular interest is the increase in temporary workers. Those jobs fell by 1,200 in May, after falling 1,600 in April (revised from 2,300). It is not that being a temp is the greatest or highest paying job in the world that makes them of particular interest. It is because they are a good leading indicator of future employment trends.
When during a downturn an employer first sees a pick up in demand, he will not know if it is just a temporary blip, or the start of a real recovery. Thus he is going to be hesitant to take the time and expense of bringing on new workers who will just have to be laid off it if does turn out to be just a blip.
The first thing the employer is going to do is work the existing workforce harder. This is particularly if hours have been previously cut back due to slow demand. The flat trend in the average work week is not a very good sign in that regard. Working more hours means more income, and thus more spending by hourly employees.
The second thing an employer will do when faced with an increase in demand is going to be to call a temp agency. Only when the employer is reasonably sure that the upturn is for real and will last will he figure that it is worth bringing on a full-time permanent employee. However, temp jobs have been trending higher since August 2009, and one would think that we would be starting to see those translating into permanent jobs at a faster rate at this point. That disconnect could be pointing to some sort of structural shift in the employment market, but it is too early to say.
Since August 2009, the number of temps is up by 508,700 or 29.1%, but is still 14.6% below the level at the start of the Great Recession. The decline in the number of temps was not large, but this is the second month in a row of declines after being a very robust job gaining sector last year and earlier this year. That is not a good omen for the future.
The number of people working part time for economic reasons. In other words, because that is all they could find, or because their previously full-time job has had its hours cut back, fell to 8.548 million, down 52,000 from April and down 228,000 from a year ago.
The decline in that number is good news (one of the very few silver linings in this report). It can be seen in the slight dip of the “underemployment rate” in spite of the increase in the unemployment rate (U-6 for you wonks out there). It slipped to 15.8% from 15.9% last month and down from 16.5% a year ago. That is still a very high rate.
After all, if you are used to working 40 hours a week, but have been cut back to just 20 hours a week, you might not be unemployed, but economically you are still struggling. Those involuntary part-time workers don’t seem to be taking the jobs of those who want to work part time. The number of people who were working part time because that is what they want to do increased by 182,000 for the month, and up 491,000 from a year ago.
Overall Grade: D-
Overall, this was an awful report. It doesn’t really matter if you just look at the headline numbers or you dig further into the details. The internals of the report were on the weak side. The unemployment rate rise was not due to a rise in the participation rate, it was unchanged. If it had been a rising participation rate, one could safely ignore the bump in the unemployment rate.
A rising participation rate would be a good sign for the economy even if it raised the unemployment rate. The 0.1 point increase in the unemployment rate puts us back to the highest level since December. The job creation pace was much lower than expected, particularly on the private sector side.
The drop in government jobs was expected. The household survey was only a little bit more upbeat, and still pointed to an anemic gain of just 105,000 jobs. The cuts in government employment were bit larger than what the consensus was looking for, but not exactly shocking.
All things considered, it is better to see the job creation in the private sector, but those public sector jobs are held by real people. Wal-Mart (WMT) does not ask if you are in the public or private sector at the checkout counter. The loss of those local government jobs has been a serious drag on job creation and thus the overall economy.
The pace of job creation is not going to put a dent in the huge numbers of people who are without work and want it. Yes, the pace of job creation in this recovery is much better than it was coming out of the last recession, but that is pretty cold comfort for those who are being forced into abject poverty because they can’t find work despite months and months of pounding the pavement (or the keyboard, as is more likely these days).
Slow Job Creation No Surprise
Officially we are now 23 months into an economic recovery, and the economy has added a total of 1.006 million private sector jobs since then. From the low in December 2009, we have added 2.110 million jobs. At the same point after the 2001 recession was over, the economy had actually lost an additional 1.007 million jobs in the private sector. Twenty three months after the 1990-91 recession ended, we had only added 920,000 private jobs.
Most of those people are really not going to be all that interested in how the pace of this recovery compares to the pace of the recovery following the 2001 downturn. They just want a job that can support their family.
However, the point is that it is not unusual for the pace of job creation to be slow even after the recession has been over for awhile. The damage done by this downturn was far deeper and more extensive than in those downturns.
The next graph below, also from http://www.calculatedriskblog.com/, shows just how deep and nasty this downturn was relative to all the post-war recessions that came before it. By this long after the previous peak in employment, in every case but one (2001) the economy had fully recovered and had more total jobs than when the recession started.
While clearly we have started the upturn, with or without census hiring, it is going to take a very long, long time before we surpass the total number of jobs the economy (both private and government) had back in January of 2008 (137.996 million). We are still 6.953 million lower than that level, so at the May pace, it would take 129 more months to get back there, in other words, not until for more than a decade.
Stimulus Wearing Off
The fiscal stimulus, as helpful as it has been in preventing a much deeper downturn and giving us the start of a recovery, is starting to wear off. We will not get much progress on the deficit either. The cuts, in slowing the economy, will result in lower tax collections than we would have gotten.
The stimulus spending at the Federal level was substantially offset by anti-stimulus for the state and local levels. That anti-stimulus is continuing. This can clearly be seen in the reduction in state and especially local government employment.
Over the last year, total government employment is down by 853,000 or 3.71% while private sector employment is up by 1.723 million, or 1.61%. Local government employment is down by 1.85% over the last year, with the loss of 267,000 jobs. The year-over-year decline in total government is a bit inflated by the loss of temporary census workers that were employed a year ago. That will be a smaller issue next month.
Austerity Measures Not Working
As those people are laid off, they have less money to spend, and that slows overall demand and results in job losses (or slower job gains) in the private sector as well. Most localities really don’t have a choice but to lay people off as salaries are usually the biggest part of their budgets, and they cannot run operating deficits.
A big part of the ARRA was actually aid to states and localities to prevent these sorts of lay offs from happening, but now that funding is running out. If not for the ARRA the cuts we are seeing now would have happened earlier. Given the extremely high duration of unemployment numbers, it is likely that many if most of those folks would still be out of work.
Lower aggregate demand is going to hurt, not help, business confidence. It sure has not helped in the U.K. which has adopted this “stimulus by austerity approach” where business confidence recently fell to a two-year low, and the economy shrank in the fourth quarter. It rebounded a little bit in the first quarter, but its growth rate is only about one fourth of what ours was in the first quarter, and we were not exactly booming in the first quarter.
Has the confidence fairy shown up in Ireland, Greece or Portugal, all of which have been under tough austerity regimes? It sure doesn’t look like it. The austerity policies that are all in vogue right now in the national discussion will have the effect of slowing, or possibly derailing the recovery, not encouraging it.
Changes in Employment
The final graph shows the year-over-year percentage change in Private and Government employment over the last 30 years. The big spike in government employment almost a year ago and in 2000 is due to temporary census hiring. Note that there has been no secular trend towards government employment growing more quickly than that of private employment.
One of the arguments about the relative level of private versus public sector pay has been that public sector employees should be paid less because they have greater job security. While it is true that government employment does not fall as much during recessions, given the experience over the last year, one has to ask, what job security for public sector employees?
Note that in the 2001 recession, the overall drop in employment was much more greatly cushioned by increasing government employment than has been the case in the Great Recession. Also keep in mind that the population has been growing about 1.0% per year over the last 30 years.
Cutting Government Spending Not the Answer
While it is true that you don’t want to raise taxes in a recession or in an incipient recovery, it is equally true that you don’t want to cut government spending. Tax increases and spending cuts are both forms of fiscal contraction. Not all tax cuts or spending are equal in terms of stimulating the economy and creating jobs.
The cut in the payroll tax is likely to be quite effective in stimulating the economy since it will result in higher take home pay to people who are likely to spend it quickly. Cuts in spending on overseas adventures in Iraq and Afghanistan would not do much damage to domestic employment but the spending there is not primarily about domestic employment.
Cuts in social safety net spending, which is apparently high on the agenda of those pushing to cut spending right away, is likely to be a major drag on the economy and job creation. The recent budget cuts agreed to prevent a government shutdown are likely to be a significant drag on job creation for the rest of the year. Further budget cuts in the near term, as are being demanded as part of an agreement to raise the debt ceiling, could well throw us back into recession.
While clearly we need to address the long-term structural deficit, slashing away right now on spending is deeply misguided. It will not bring in anything near the advertised reduction in the deficit. They will cause enormous pain amongst the most vulnerable people in our society.
Lowering Unemployment Should Take Priority
We still have 13.914 million unemployed. Getting them back to work should be our first priority. As they get jobs, they will have income, and thus start to pay income taxes again. That in itself would help bring the deficit back down. After all, a big part of the deficit problem, particularly in the short term, is that tax revenues are depressed by the weak economy.
Federal tax collections are, as a share of GDP, near their lowest point in 60 years. That is also true of State and Local tax collections, and if anything more so. We should be increasing domestic spending right now to help bring down the unemployment rate more quickly, not cutting spending. People with steady jobs will feel more confident about buying a home, and that would go a very long way towards helping out the housing overhang and the foreclosure problem.
That’s not to say that every penny currently being spent is sacred. There is plenty of overlap in many government programs. Cutting the duplication is fine, but that money should be channeled into the most effective programs, not simply cut. While shutting down the government would not be a good thing, neither is going half way and splitting the difference on damaging spending cuts. Eating a little bit of arsenic is not good for you, even if it is not enough to kill you.
Cuts Will Slow the Economy
Huge spending cuts to domestic programs will slow the economy, but it seems to have gathered enough momentum that we are not likely to fall into a double-dip recession. Still, the cuts are likely to keep us in the purgatory of a pseudo-recovery, one where the economy is growing but not producing a lot of jobs, much longer than needs to be the case. But hey, the 2012 elections are coming up
I would note that the total number of private sector jobs is now at its highest point since March 2009. Data collection happens in the middle of the month, and so the March 2009 data is from just two weeks after the ARRA had been passed (and just 7 weeks after Obama took office) and had not had a chance to take effect.
The rate of job losses diminished dramatically as soon as the program started to get into action. In the first quarter of 2009, the economy lost 2.349 million jobs. That moderated to a loss of 1.537 million jobs in the second quarter and 715,000 jobs in the third quarter. The ARRA was effective, and would have been even more effective if it were bigger, as I was urging at the time. Now fiscal policy is moving in the other direction, and is likely to slow the pace of job creation.
Yes we have made progress, but we still have a very long road ahead of us to just get back to the same number of jobs in the economy we had at the end of 2007. As we slowed dramatically this month, that road is looking ever longer, unless we can reaccelerate. At the May pace of total job creation it would more than a decade from here, or early in 2022, before we saw a new high in jobs.
Unemployment vs. Inflation, Deficit & Weak Dollar
In the meantime the population continues to grow. Unemployment is, to my mind, the biggest economic problem we face. It is doing far more damage than inflation at this point, but inflation seems to be the only thing the talking heads are talking about these days, other than the deficit.
It is not even the trade deficit that they are obsessed with, but the budget deficit. Yes, we need to take care of that over the medium to long term. To do that we are going to need to 1) control the rate of health care inflation throughout the economy, not just in the part that the government pays for, 2) raise tax revenues back up to more normal levels of about 19% of the economy from the under 15% level we are currently at, and 3) bring down Defense spending (which has more than doubled over the last decade, growing much more quickly than non-Defense spending).
A weak dollar is a good thing when we are at 9.0% unemployment. It will increase our exports and decrease our imports. However, since it will help put people back to work, the talking-head types have to see it as a disaster. Then again, everyone that goes on those shows has a job, and probably a very high paying one at that.
Job creation really needs to be job one, and it is time for it to get back to the top of the national policy agenda. Unfortunately that has not been the case — on either side of the aisle — for quite some time now. Yes, it is still talked about for making political points, but as for actually being prepared to do anything about it, nothing, except for policies that seem designed to make the problem worse, not better.
Be the first to comment