During the past months an increasing number of economists have warned of the growing likelihood of an US economic recovery that fails to produce job growth. A bevy of economic reports in the past weeks have sent mixed signals as to economic strength, but overall most economists believe that the US economy has turned a corner. Yesterdays unemployment report, however, adds to the concern that the US is looking forward to a sustained period of high unemployment and lack of job creation.
The Department of Labor reported a rise in the adjusted non-farm unemployment rate to a 30 year high of 9.7% after the economy shed another 216,000. However, beyond the adjusted payroll number lies a host of employment numbers that continue to raise concern.
The adjusted payroll numbers do not include 2 groups of unemployed workers that the DOL refers to as temporary part-time workers and marginally attached workers. The DOL reported that 9.1 million Americans are currently working part-time due to economic conditions. This group is comprised of workers who have had their hours cut from full-time status or who have been able to find full-time employment. In addition the DOL reported that the number of marginally attached workers grew to 2.3 million. Such marginally attached workers include individuals who are unemployed but have not sought work over the 4 weeks prior to the survey and includes some 758,000 "discouraged' workers that have simply given up. The addition of such excluded groups caused the real unemployment rate to increase to 16.8%.
Inside the Numbers
A major cause of concern for within the economy is that a pattern has developed in which the real unemployment rate continues to rise at a faster pace than the adjusted unemployment rate. While the adjusted rate rose .3% last month, the real unemployment rate jumped .5%. As a result, the numbers demonstrate that the unemployed are remaining unemployed as the number of marginally attached unemployed jumped to a record high which will continue to place increased strains upon social services.
The DOL also adjusted their June and July unemployment figures upward as is typical with late responses and the rush to get the report published. In June the economy shed an additional 20,000 jobs and in July we lost 33,000 more jobs than initially reported.
Manufacturing and Construction sectors both shed more jobs than were expected in the month of August raising concerns over the how quickly those sectors are recovering and conflicting with economic data reflecting growth with those industries.
The construction industry shed more than 65,000 jobs in July continuing a very consistent pattern of job less over the summer months. August typically represents the height of construction job creation and was not expected to continue to shed jobs in light of promised growth through the Economic Recovery Act. Furthermore, the manufacturing sector reversed course by reporting 63,000 job cuts in August compared to a low-level 43,000 losses in the previous month. Recent economic reports have suggested an increase in worker productivity and increase in the ISM manufacturing index suggesting a turnaround in the sector. However, job data reflects that worker productivity is rising because fewer workers are taking on greater responsibility and the manufacturing sector as a whole may have experienced growth but is still not hiring new workers.
The only private industry sector to add jobs in August was the Health Care industry which has added 544,000 jobs since last December. However, the health Care sector only added 28,000 jobs in August reflecting industry hiring which has continued to decline since April. In addition, within the health care sector, hiring has leveled off within hospital industry which was the primary driver of industry job creation.
In August the DOL reported further losses within Government employment reflecting the stimulus packages inability to increase federal employment levels enough to offset continued layoffs within State & Local governments.
The jobless rate is not increasing as rapidly as it was during the first half of the year. However, employers cut deep and hard during the first quarter of the year and economists had expected employment figures to improve through the fall. Historically, the periods July to August and November to December have provided the strongest levels of employment in the US. July and August numbers are typically strong due the height of US construction levels and increased manufacturing in preparation of an upcoming holiday season (yes, most orders are placed and stores beginning receiving inventory during this period). As a result of continued losses within manufacturing and construction and the onset of fall, we are likely to see the adjusted unemployment rate remain somewhat stable through the end of the year perhaps reaching 10%. However, if consumer spending does not recover prior the holiday season, then we once again likely to see a drastic increase in January and February unemployment data and an adjusted unemployment rate of 10.5%-11.0% by spring. In addition, the real unemployment rate is likely to approach 18% during the same period.
According to recent polling, more than 60% of Americans do not believe that the stimulus package is creating jobs. Unemployment data corroborates that concern as the stimulus package has only provided a slow trickle of funds to select industries. The stimulus package has provided a life line to the economy, any time the government spends money at the rate it is, it will positively affect the economy. However, that life line is not enough to save jobs as the stimulus has failed to provide relief to consumers and increase consumer spending. Retailers reported less than expected "back to school" sales in August and are now growing more concern that increased consumer spending may not occur before the onset of the holiday shopping season. Roughly 70% of our economy is driven by consumer spending and with a stimulus plan that failed to provide relief to consumers, a slow recovery in consumer spending will mean an inherent lack of job creation.
Comments