This is the second part of our jobs report analysis. To read
part one, please click here.
This month’s employment report was deeply disappointing, and would
have been shockingly low, even if not for the better-than-expected
ADP report on Thursday. The rate of job creation slowed
dramatically to just a total of 18,000 from 25,000 in April, and
far below the 80,000 consensus expectation. Also the job creation
totals for both April and May were revised lower.
The unemployment rate inched up to 9.2% from 9.1% and both the
civilian participation rate and the percentage of the population
that is employed fell. The median duration of unemployment rose to
22.5 weeks from 22.0 weeks. All in all an extremely weak report,
and it is very hard to find any silver linings.
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 May, the unemployment
rate for adult men (over 20) rose to 9.1% from 8.1% in May, but
down from 9.9% as recently as November. It is down from 9.8% a year
ago.
A bit of the year over year decline is an illusion though as the
participation rate for men fell from 74.3% a year ago to 73.5% in
June (for a fuller discussion of the importance of the
participation and employment rates see "Awful Jobs Report in Depth,
pt. 1"). The employment rate for men fell to 66.8% from 67.1% in
May, and down from 67.0% a year ago.
For women, the unemployment rate was unchanged at 8.0% in June, and
up from 7.8% a year ago. The participation rate was 59.6%, down
from 59.9 in May. It had been at 60.0% since January, but down from
60.2% a year ago.
The employment rate fell to 54.8% from 55.2% in May, and is below
the 55.6% rate a year ago. The falling participation rate means
that the job situation for both sexes deteriorated this month by
more than the increase in the unemployment rate alone 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 a little bit worse for teens in June. The teen
unemployment rate rose to 24.5% from 24.2% in April, and is down
from 25.8% a year ago. The month-to-month increase is, however, not
as bad as it looks. The participation rate rose to 34.0% from 33.3%
in May, and is just slightly below the 34.1% rate a year ago.
The percentage of teens that actually have a job rose to 25.6% from
25.2% in May, and is up from 26.3% 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.
Results by Racial Breakdown
Not surprisingly, whites have a lower unemployment rates that do
blacks or Hispanics. The white unemployment rate was 8.1% for the
month, up from 8.0% in May, but is down from 8.6% a year ago. The
participation rate was at 64.5% in June, down from 64.7% in May,
and down from 65.1% a year ago.
The employment rate for whites was down to 59.3% from 59.5% from
last month and is down from the year ago level of 59.5%. Thus it is
a fair conclusion that the jobs picture for whites deteriorated on
the month, and by more than the 0.1% increase in the unemployment
rate would indicate. The decline from a year ago in the
unemployment rate is largely due to the fall in the participation
rate, not a real improvement in the employment picture.
The unemployment rate for blacks was unchanged at 16.2% for the
month, but it is well above the 15.4% year-ago level. The true
picture, though, is much worse than that. For the month, the
participation rate for blacks fell to 61.0% from 61.9% a year ago,
so the monthly deterioration much worse than it appears. In May,
the participation rate was 61.1%.
Thus, the employment situation for blacks over the last year has
deteriorated noticeably, and is slightly worse than last month. The
employment rate for blacks fell to 51.1% from 51.2% in May, and is
down from 52.4% a year ago. The unemployment rate is double that
for whites, and the employment rate is 13.8% lower (51.1% vs.
59.3%).
The participation rate is just 5.4% lower. A year ago the
participation rate was 4.0% lower and the employment rate was 11.1%
lower. A year ago the unemployment rate for blacks was 79.1% higher
than the white unemployment rate.
For Hispanics, the unemployment rate in June fell to 11.6% from
11.9% last month but down from 12.4% last year. The true picture
was a bit more downbeat than that. The participation rate was
unchanged 66.3% on the month and down from 67.4% a year ago.
The employment rate rose to 58.6% from 58.4% last month. A year ago
the Hispanic employment rate was 59.0%. Thus, there has been some
improvement in the job picture, but not as much as the
year-over-year drop in the unemployment rate would suggest. The
participation rate by Hispanics is actually 2.8% higher than for
whites, but a year ago it was 3.5% higher than for whites.
The employment rate is 1.2% lower, while a year ago it was 0.8%
lower than for whites. Over the last year the unemployment rate has
moved from being 44.2% higher than the white unemployment rate to
43.2% higher than for whites.
Stay in School
The unemployment rate for high school dropouts fell to 14.3% from
14.7% in May. It is up from the year-ago level of 14.1%. The
monthly decline looks encouraging, but it is exaggerated. The
participation rate amongst the drop outs fell to 45.0% from 45.1%
last month and from the 45.2% level of a year ago. The percentage
of high school dropouts actually employed rose to 38.6% from 38.5%
last month and is down from 38.9% 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 25
and older was 8.0%, up from 7.8% in May but down from 8.2% 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) rose to 10.0% from 9.5%.in May. It
is down from the 10.7% 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 43.0%
higher than for those who at least finished high school. The
participation rate for high school grads rose to 60.6 from 60.4%
from a month ago. A year ago it was 61.9%.
Thus, the improvement from last year is somewhat of an illusion,
but so is part of the big monthly increase in the unemployment
rate. The employment rate for high school grads fell to 54.5% from
54.6% in May, and is down from 55.3% a year ago. Note that the
participation rate and the employment rate are much higher for high
school grads than for dropouts. The payoff from graduating is thus
actually much higher than the unemployment rate differential (as
big as it is) would indicate.
Those who went to college but did not finish, or only got an
Associates degree, had an unemployment rate of 8.4%, up from 8.0 in
May and 7.5% in April, and up from 8.3% a year ago. The
participation rate for Associate degree-holders was ticked up to
69.8% from 69.7% but is down from 70.9% a year ago.
The employment rate dipped to 63.9% from 64.1% in May and is down
from the 65.0% level of a year ago. There is still a sizable payoff
in terms of employment prospects from going to Community College,
although the difference is not quite as dramatic as the payoff from
simply graduating from high school. The high school grad
unemployment rate is 19.0% higher than that of the Junior College
set.
For those who stay in school to get their BA (or higher) the
unemployment rate fell to 4.4% from 4.5% in May, and is unchanged a
year ago. However, the participation rate fell to 76.8% from 77.5%
in April, and from 77.2% a year ago. The percentage of college
grads with jobs was fell to 73.4% from 74.0% last month and from
73.8% a year ago.
The next graph (from this source) is unfortunately not updated with
the June 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.
Unemployment & Household Formation
The unemployment rate for people 20-24, those who are just entering
the full time workforce was 14.5% down from 14.7% in May, and down
from 15.3% a year ago. This decline is good news. If these people
can not 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
cohorts -- the prime age for first time home ownership -- rose to
9.6% from 9.3% last month but down from 10.2% a year ago. Lowering
the unemployment rate among 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 25,000
workers, and have trimmed their payrolls by 305,000 over the last
year.
Actually, it is mostly at the local government level where the
declines are occurring. Local government employment was down by
18,000 on the month, and is down by 262,000 from a year ago. The
number of state employees was down 7,000 on the month and is down
by 43,000 over the last year.
Government
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 14,000 for the month and is down by
354,000 over the past year (mostly due to the hiring and then
laying off of temporary Census workers last year).
Within local government, education jobs were down by 12,600 for the
month and are down by 159,200 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.
Seriously, people worry about the burden that we are putting on our
children due to the increase in the federal debt. Just how do we
expect them to bear that burden if most of them are illiterate and
innumerate? How are we going to compete in the future against
countries that actually think it is a good thing to educate their
future workforce?
Private Sector Dismal
The private sector added 57,000 jobs, down from an increase of
73,000 jobs in May (revised down from 83,000). That is the second
dismal month in a row. In April, the private sector added 241,000
jobs (revised down from 251,000, and an initial read of
268,000).
The private sector job growth over the last three months is anemic,
averaging 126,700. If the economy were near the top of an economic
cycle, that would be OK but hardly great, and it is awful coming
out of a deep recession. The average of the last two months is even
worse at just 65,000 jobs.
The June number was far below the consensus expectations of 110,000
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 July jobs report comes out, the June numbers will be
revised even lower.
This is the 19th straight month that the private sector has added
jobs, with a total increase of 1.695 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. The total number of jobs is still 6.979 million below
the peak of the last cycle (1/08), but is up 1.771 million above
the cycle low (2/10). Private employment is 6.714 million below the
peak, but 2.124 million off the low.
Goods Producing Jobs
Within the private sector, the goods producing sector gained just
4,000 jobs, on top of a gain of just 3,000 in May. That is way down
from the gain of 43,000 in April (revised up from 38,000). Over the
last year, employment in the goods producing sector is up
243,000.
The construction industry lost 2,000 jobs, after dropping 4,000
last month. 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 2.213 million construction
jobs. Most of the decline though happened after the overall private
sector jobs peaked in January 2008, and since then Construction
jobs are down by 1.953 million, or 26.2%.
Since the peak, overall private sector employment is down by 6.979
million. In other words, this one industry is directly responsible
for 31.7% of all job losses since the start of 2008, even though it
was responsible for just 6.41% of all private sector jobs in
January 2008.
Manufacturing
Manufacturing gained 6,000 jobs, up from the 2,000 gained in May
(revised from a loss of 5,000). 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 251,000 of those jobs.
Still, relative to the start of the Great Recession manufacturing
jobs are down by 2.021 million, representing 29.0% of all job
losses from the peak.
Service Sector
The service sector gained 53,000 jobs in the month, down from an
increase of 70,000 in May (revised from a gain of 80,000) and from
a gain of 198,000 in April (revised from 213,000). Relative to a
year ago, private service sector jobs are up by 1.452 million, but
are still off by 2.717 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 17,400 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 12,000 in June, after falling 1,700 in May (revised
from 1,200). 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 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 8/09
the number of Temps is up by 483,100 or 27.6%, but is still 12.5%
below the level at the start of the Great Recession. The decline in
the number of temps was not large, but this is the third 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 -- rose to
8.552 million, up 4,000 from May and down 79,000 from a year
ago.
The “underemployment rate” rose much more sharply, to 16.2% from
15.8% this month than did the unemployment rate. (U-6 for you wonks
out there). However, it is still 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 2,000 for the month, and up 507,000 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 understated due to a fall in the
participation rate. 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, and will probably continue for
several more months.
The household survey was even more downbeat, and still pointed to a
loss 455,000 jobs. The cuts in government employment were bit
larger than what the consensus was looking for, but not exactly
shocking. Unlike previous months, federal jobs also declined.
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).
Officially we are now 24 months into an economic recovery, and the
economy has added a total of 1.063 million private sector jobs
since then. From the low in December 2009, we have added 2.124
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 four months after the 1990-91 recession ended, we had only
added 1.024 million 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.
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