While employment rose by 160,000 jobs in July, the overall unemployment rate remained at 8.3%.1 “Hurrah” is not the correct response to these data. (“Hurrah” is the response seen the most in the MSM.) First, the trends:
The payrolls chart (right) reveals a largely flat trend for the past year, which says that job formation is weak and has not been able to offset job losses. The overall unemployment rate (left) actually increased to 8.3% in July (from 8.2%) as if to underscore the weak employment situation.
Here is where the job gains were:
- Manufacturing (Durable Goods) +24,000
- Retail Food & Beverages +6,200
- Retail health care +6,400
- Transit, Ground transportation + 6,500
- Professional and technical service + 17,900
- Computer systems design +7,000
- Administrative and waste services + 27,000
- Employment services + 21,800 (Temp is 14,100 of that)
- Education + 18,200
- Health care + 12,000
- Social services + 7,100
- Food services and drinking places + 29,400
At least we are dining out and drinking. Sarcasm aside, while the healthiest numbers to take away from this report is that manufacturing job growth was relatively strong (especially auto and fabricated metals) but … that sector is getting soft and, as we know, auto sales fell off last month. With the economy is stall mode, we should expect manufacturing employment to shrink along with it. Generally these numbers reflect a stagnating economy.
Unless you have an economy where all wants and needs of the lotus eaters are satisfied without effort, ultimately things need to be manufactured and food needs to be grown in order to support the service economy. Of course with growing international specialization of labor and free trade, things can be purchased abroad, as long as foreign exporters bring back the dollars here to buy something. Which is one of the reasons we can support a huge and growing services industry (lawyers, architects, engineers, software designers, finance). Foreigners are large consumers of American services. So we need not panic about the relative decline of manufacturing in the U.S.
What one can worry about is the ability of our workers to adapt to a changing work environment. And that is a problem as our labor force is shrinking relative to our population. The “civilian labor force participation rate” is now at 63.7% of the total workforce. The total employment to population rate is 58.4%. This puts these rates back to about 1982 (see where blue and red lines intersect the black line):
There are several reasons for this trend, including aging demographics (Boomer retirement), a poor educational system that fails to match skills to employment needs, the inability of workers to retrain for new careers, union quasi-wage controls that deter employment and send companies to source products from abroad, an outdated immigration system that restricts the entry of highly skilled workers (engineers, doctors, software designers, etc.), and last but not least, government regulations that deter employment such as minimum wage rules, high employment taxes (FICA, SSN), the burden of health care plans, and the highest corporate tax rate among OECD nations (39.2%).
Of course the primary reason for current high unemployment is our never-ending recession. The last two boom and bust cycles have devastated our economy. The employment ratios decline (above chart) didn’t start in 2008 but with the crash of the Dotcom economy in 2000. There is no conspiracy here: these cycles originate with the Fed’s attempt to revive the last boom by pumping new money into the system. Two successive rounds of boom-bust have resulted in massive malinvestment of capital into companies that made no economic sense (Dotcom) and into real estate and consumption that fed the biggest splurge in our history.
The conflation of money and wealth has caused the destruction of trillions of dollars of real savings and not-so-real savings (boom related swag, if you will) and the economy is having a difficult time recovering from this crash because of attempts by the Fed to reflate the economy with more of the same things that caused the crash, plus policies of the Administration(s) that have thwarted liquidation of malinvested assets and related debt, thus tying up capital in wasteful projects.
Until the monetary madness stops, the economy will remain stalled, stagnating in the Japanese fashion until either interest rates are raised, QE is nailed in a coffin, and rules hampering new business formation and growth are eliminated; or (more likely) more rounds of QE and bank lending inflate us into another bubble.
These observations will come as no help to the unemployed. While the government professes to help the jobless, until workers adapt to a changing market, they will remain a permanent underclass. And that is not good for America.
1. The actual unemployment rate is always a subject of controversy. Many claim that the actual rate is much higher because of various seasonal adjustments, and the birth-death model of business formation, and the like. For those that wish to follow this line of thinking, please visit Mish who does an excellent job with this. My position is that the actual rate is less important than the trend. We can never know what the “real” data are, but the important thing is whether or not jobs are increasing or decreasing and the approximate rate of such.