Awful Jobs Report In Depth, pt. 2

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.