ANF Abercrombie and Fitch Co

In this month’s employment report, the two different surveys seem to be telling two diametrically opposed stories. The establishment survey paints a picture of fairly robust --  and certainly better than expected -- job growth. The Household survey is much more downbeat and shows increasing levels of unemployment for almost every major demographic group.

A divergence between the two surveys is hardly unprecedented, and for the first three months of the year, the household survey was noticeably more upbeat than the establishment survey. Over the longer term the two do tend to converge, and the differences tend to come out in the wash.

Demographics of Joblessness

This recession has hit men harder than it has hit women. However, over the past year, things seem to be “evening out” between the genders, and this month both slipped back. In April, the unemployment rate for adult men (over 20) rose to 8.8% from 8.6% in March, but down from 9.9% as recently as November. It is down from 10.0% a year ago.

A bit of the year-over-year decline is an illusion though as the participation rate for men fell from 74.6% a year ago to 73.4% in April, unchanged since February (for a fuller discussion of the importance of the participation and employment rates see "Jobs Report in Depth, Part 1"). The employment rate for men fell to 66.9% from 67.0% in March, and down from 67.1% a year ago. 

For women, the unemployment rate rose to 7.9% in April, up from 7.7% in March, but down from 8.2% a year ago. The participation rate was 60.0%, since January, but down from 60.6% a year ago. The employment rate fell to 55.3% from 55.4% in March, and is below the 55.7% rate a year ago. For both sexes, there has been a real year-over-year improvement in the employment situation, but it is not as big as just looking at the unemployment rates would indicate.

In the overall big picture, men have fared far worse than women in this downturn. There are two possible reasons for that. The first is that the industries that have been particularly hard hit in this downturn tend to be far more male dominated than the industries that have skated though this recession more or less unscathed.

The most glaring example of this would be the construction industry versus the health care industry (more on the industry breakdowns below). The second explanation is that on average, women tend to still be paid far less than men do, and employers might be more prone to let their relatively high priced male employees go first before their cheaper female employees. The industry effect is probably the bigger one, but the two are not mutually exclusive and both might be playing a role.

Teen Employment

Teens, regardless of gender have had a very hard time of it in this recession. Just go to a McDonald's (MCD) and you will see this for yourself. Normally the blemishes you see on the cashier's face is acne, not wrinkles and age spots as is the case now.

Things got even worse for teens in April. The teen unemployment rate rose to 24.9% from 24.5% in March, but is down from 25.4% a year ago. Things are even worse than they sound. The participation rate fell to 33.7% from 34.1% in March, and is well below the 35.8% rate a year ago. The percentage of teens that actually have a job fell to 25.3% from 25.8% in March, and is down from 26.7% a year ago.

While for the most part the earnings from teen jobs tend to go towards clothes from Abercrombie & Fitch (ANF) and other teen clothing stores, for many it is a significant part of paying for college. Also when teens work, they learn important job skills, such as the importance of actually showing up, and doing so on time. The extremely low levels of teens working is not a good sign for the future.

Racial Breakdown

Not surprisingly, Whites have a lower unemployment rates that do Blacks or Hispanics. This month, the picture deteriorated for all. The White unemployment rate rose to 8.0% from 7.9%, but is down from 9.0% a year ago. The participation rate rose to 64.7% in April, from 64.6% in March, though it is down from 65.6% a year ago.

The employment rate for Whites was unchanged at 59.5% from last month but is down from the year-ago level of 59.7%. The rise in the unemployment rate from last month is a bit of an illusion due to the rise in the participations rate, but then so is the decline from a year ago due to the fall in the participation rate.

The unemployment rate for Blacks rose to 16.1% from 15.5% in March, but is below the 16.5% a year ago level. For the month, the participation rate for Blacks was unchanged at 61.5%, so the monthly deterioration is as bad as it appears. A year ago the participation rate was 62.8%. Thus there has been no real improvement in the employment situation for Blacks over the last year.

The employment rate for Blacks fell to 51.5% from 51.9% in March, and is down from 52.4% a year ago. The unemployment rate is 101.3% higher than for Whites, and the employment rate is 13.4% lower (51.5% vs. 59.5%). The participation rate is just 4.9% lower. A year ago the participation rate was 4.3% lower and the employment rate was 12.2% lower. A year ago the unemployment rate for Blacks was 83.3% higher than the White unemployment rate.

For Hispanics, the unemployment rate in February jumped to 11.8% from 11.3% last month but down from 12.4% last year. The monthly deterioration is only partly an illusion. The participation rate rose to 66.6% from 66.4% in March and from 66.1% in February. On the other hand, part of the year over year improvement though is an illusion as the participation rate is down from the 67.7% level last year.

The employment rate slipped to 58.7% from 58.9% last month. A year ago, the Hispanic employment rate was 59.3%. The participation rate by Hispanics is actually 2.9% higher than for Whites, but a year ago it was 3.2% higher than for Whites. The employment rate is 1.3% lower, while a year ago it was 0.1% lower than for Whites. Over the last year the unemployment rate has moved from being 37.7% higher than the White unemployment rate to 47.5% higher than for Whites.

Stay in School

The unemployment rate for high school dropouts fell to 13.7% from13.9% in February and from 14.2% in January. It is down from the year-ago level of 14.4%. Again, the monthly improvement is actually better than it appears, but the year over year decline is partly an illusion.

The participation rate amongst the dropouts rose to 46.1% from 45.5% last month and from 45.1% in January but is down from the 46.3% level of a year ago. The percentage of high school dropouts actually employed rose to 39.8% from 39.2% last month and from 37.2% January and is up slightly from 39.7% a year ago. 

I should note here that the numbers by level of education refer to people over age 24, and so are not directly comparable to some of the other numbers. The overall unemployment rate for people over 24 years old was 7.6%, up from 7.4% in March but down from 8.3% a year ago.

Just finishing high school or getting your GED substantially increases your odds of having a job. The unemployment rate for high school grads (with no college) was rose to 9.7% from 9.5%. in March. It is down from the 10.5% rate a year ago. In all three months, the level was still far below that for dropouts. This month the unemployment rate for dropouts was 50.5% higher than for those who at least finished high school.

The participation rate for high school grads rose to 60.9% from 60.0% last month. A year ago it was 62.4%. Thus, the improvement from last year is somewhat of an illusion. However, month to month, things actually improved, rather than deteriorated as the unemployment rate alone would indicate. The employment rate for high school grads rose to 54.6% from 54.4% in March but is down from 55.8% a year ago. Note that the participation rate and the employment rate are much higher for High School Grads than for Dropouts. 

Those that went to college but did not finish, or only got an Associates degree, had an unemployment rate of 7.5%, up from 7.4% in March, and down from 8.3% a year ago. The participation rate for Associate Degree holders was unchanged at 69.7%  but is down from 71.0% a year ago. The employment rate dipped to 64.5% from 64.6% in March but is down from the 65.1% level of a year ago.

For those who stay in school to get their BA (or higher) the unemployment rate rose to 4.5% from 4.4% in March, and is down from 4.8% a year ago. The participation rate rose to 77.0% from 76.9% in March, which explains the rise in the unemployment rate. The participation rate is down from 77.2% a year ago. The percentage of college grads with jobs was unchanged at 73.5%, both from a month and a year ago.

The next graph (from this source) is unfortunately not updated with the April data, but shows the long term history of unemployment by level of education. While the level of unemployment is always higher the less education one has, the relatively uneducated really get hit hard when the economy turns south.



The unemployment rate for people 20-24, those who are just entering the full time workforce was 14.9% down from 15.0, and down from 17.1% a year ago. This decline is good news. If these people cannot get jobs, they tend to remain living with Mom and Dad. This slows the rate of household formation, and hence the demand for housing. That makes it difficult for the economy to absorb the huge housing inventory overhang.

Normally housing is the locomotive that pulls the economy out of recessions. That locomotive is still derailed, and it is the principal reason that this recovery has been so sluggish. The improvement in the unemployment rate for these folks is good news, but the level is still extremely problematic.

The unemployment rate for those a bit older, the 25 to 34 year old cohort, which is the prime age for first time home ownership, moved the other way, rising to 9.5% from 9.1% last month but down from 10.2% a year ago. Lowering the unemployment rate amongst these people will be a key to resolving the housing problem. We are making progress, but still have a long way to go. Several studies have shown that not being able to get a job right after finishing school hurts people not only short term, but the effects lasts their entire working career.

Where the Jobs Are (and Are Not)

The private sector actually added more than the total number of jobs again this month. State and local governments laid off 24,000 workers, and have trimmed their payrolls by 272,000 over the last year. Actually it is mostly at the local government level where the declines are occurring. Local government employment was down by 14,000 on the month, and is down by 245,000 from a year ago. The number of state employees was down 8,000 on the month and is down by 27,000 over the last year.  

In looking at the effectiveness of the stimulus program from the Federal government, one should keep in mind the massive anti-stimulus effect of budget cuts and tax increases (mostly budget cuts) at the state and local levels of government. Federal Government employment was down 2,000 for the month but is down by 404,000 over the past year (mostly due to the hiring of temporary Census workers last year).

Within local government, education jobs were down by 4,700 for the month and are down by 133,700 over the last year. Given the huge disparity in the unemployment rate between the uneducated and the highly educated that I discussed above, one has to seriously question the wisdom of laying off so many K-12 teachers. How are we going to compete in the future against countries that actually think it is a good thing to educate their future workforce?

The private sector added 268,000 jobs, on top of an increase of 231,000 jobs in March (revised up from 230,000). In February the private sector added 261,000 jobs (revised up from 240,000, and an initial read of 222,000). The private sector job growth over the last three months is certainly respectable, averaging 253,300. That’s good, but hardly great, especially coming out of a deep recession.

The April number was far above the consensus expectations of 200,000 private jobs gained. The upward revisions to previous months have been happening regularly for several months now. That makes it likely that when the May jobs report comes out, the April numbers will also be revised higher. I would not be surprised if the March numbers are also revised up again next month as well.

This is the 17th straight month that the private sector has added jobs, with a total increase of 1.717 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.

Within the private sector, the goods producing sector gained 44,000 jobs, on top of a gain of 37,000 in March (revised up from 31,000). Over the last year, employment in the goods producing sector are up 235,000. The construction industry lost 5,000 jobs, after gaining 2,000 (revised from a loss of 1,000) last month. This marks three straight months of construction jobs gained (after revisions).

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 2.212 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 2.202 million, or 28.5%.

Since the peak, overall private sector employment is down by 6.748 million. In other words, this one industry is directly responsible for 32.6% 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 gained 29,000 jobs, on top of 22,000 gained in March (revised from up 17,000). 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 250,000 of those jobs. Still, relative to the start of the Great Recession manufacturing jobs are down by 1.764 million, representing 26.1% of all job losses from the peak.

Service Sector

The service sector gained 224,000 jobs in the month, up from an increase of 194,000 in March (revised from a gain of 199,000) and from a gain of 180,000 in February (revised from 167,000). Relative to a year ago, private service sector jobs are up by 1.482 million, but are still off by 3.799 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 41,800 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 2,300 in April after rising 34,400 (revised from 64,100) in March. 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 she is going to do is work the existing workforce harder. This is particularly is 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 8/09 the number of Temps is up by 509,900 or 29.1%, but is still 14.6% below the level at the start of the Great Recession.

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, rose to 8.600 million, up 167,000 from March but down 546,000 from a year ago. The recent bounce in that number is bad news. It can be seen in the rise of the “underemployment rate” (U-6 for you wonks out there) which climbed to 15.9% from 15.7% last month but down from 17.0% 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 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 167,000 for the month, and down 753,000 from a year ago.

Lots of Crosscurrents

Overall, this was a very solid report. However, when you look below the surface, it is not as good as the headlines suggest. 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 0.2 point increase in the unemployment rate puts us back to where we were in January. The January rate though was after a dramatic 0.4 point drop on top of a 0.4 point drop in December. That was the best two month decline since 1958. The job creation pace was a much higher than expected, particularly on the private sector side. That, however, is only true of the establishment survey, the household survey indicates an actual decline in employment.

The cuts in government employment were bit larger than what the consensus was looking for, but not exactly shocking, and the miss was offset by a revision to last months numbers. 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 pace of job creation is starting 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).

Officially we are now 22 months into an economic recovery, and the economy has added a total of 926,000 private sector jobs since then. From the low in December 2009, we have added 2.027 million jobs. At the same point after the 2001 recession was over, the economy had actually lost an additional 1.154 million jobs in the private sector. Twenty two months after the 1990-91 recession ended, we had only added 777,000 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 7.258 million lower than that level, so at the March pace, it would take 34 more months to get back there, in other words, not until January 2014. 



The Anti-Stimulus

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. 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 404,000 or 1.79% while private sector employment is up by 1.717 million, or 1.60%.

Local government employment is down by 1.60% over the last year. 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 bigger issue next month.

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 can not 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. However, increased confidence is the key part of the reasoning of these people for cutting jobs to increase employment. It sure has not worked out that way 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 to me.

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.



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 lest of the year. 

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.

We still have 13.747 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 it self 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. 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.

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.

Unemployment is, to my mind, the biggest economic problem we face. It is doing far more damage than inflation at this point.
 
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