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U.S. Jobs Situation Worse Than Broadcast

Economics / Recession 2008 - 2010 Jul 24, 2010 - 09:21 AM GMT

By: Hans_Wagner

Economics

Best Financial Markets Analysis ArticleThe unemployment numbers for June 2010 were worse than articulated. The headline number said 83,000 private sector jobs were created and the unemployment rate slipped to 9.5% from 9.7%. Sounds like things are looking up. But, as you might expect, the devil is in the details and the details tell a different story.


Birth/Death Rate

The Bureau of Labor Statistics uses a statistical model they call the Birth/Death Rate. Do not worry, the Birth/Death model has nothing to do with people being born or dying. Rather it attempts to estimate the number of new business that were born last month and the number of old business that gave up the ghost. They use these numbers to adjust the employment numbers they report each month. The model uses historical statistics and applies seasonality factors to derive their estimate of the number of the number of business that began operation and that closed their doors. This is normal application of statistical theory, as the BLS has to make some sort of estimate. The problem is the birth/death rate tends to skew the employment numbers more than most people realize.

Last month the private all the talking heads and administration officials pointed out that 83,000 new private sector jobs were created. Using the BLS birth/death model there were 550,000 new jobs created in the last three months. That is a good result, if it was real. On average, the U.S. economy needs to create 125,000 to 150,000 new jobs per month to keep up with the growing population.

The top three job creation categories were Leisure & Hospitality with 231,000 new jobs, Professional & Business Services with 106,000 new jobs and Construction with 87,000 new jobs for the last three months.

Let’s apply some basic logic to these numbers. The 231,000 new jobs in the Hospitality and Leisure industry aligns with the summer vacation season. Many of these jobs are temporary and low paying.

According to the establishment survey, only 65,000 new workers were added to the Hospitality and Leisure industry over the last three months. With the U.S. economy experiencing a weak recovery at the best, it is hard to imagine that the industry is experiencing rapid growth. Moreover, since this industry is seasonal in nature, we should expect a number of these jobs to disappear in the fall when the vacation season ends.

Construction is another industry where the number of new jobs is suspect. U.S. single-family home sales reached record low levels last week. In addition, mortgage application were down. Some of this can be attributed to the end of the government’s tax credit for homebuyers. Still it is hard to imagine that the construction industry would be expanding at such a high rate when the primary driver of construction jobs is building homes.

The point is we need to look at the detail to get a better understanding of the real job situation. When we do, we can see some suspect numbers that indicate the jobs that are being created are not as great as the headline number.

Jobs are hard to Find

You might have read that the unemployment number fell from 9.7% to 9.5%. The reason the number fell was the number of people in the labor force fell. According to the BLS rules, if you have stopped looking for work for four or more weeks, you are not considered unemployed.

One of the statistics I like to watch is the percent of people that have jobs. If the economy is creating enough new jobs, this percentage will rise. While we have seen a small rise in the number on the chart below, it has a long way to go to get back to where it was in 2007. And that level was below 2000.

For June, the number of long-term unemployed defined as those without a job for 25 weeks or more remained at 6.8 million. The number of people working part time for economic reasons, ie they would prefer full time work remains at 8.6 million. Add in the marginally attached workers and we find that the unemployment and underemployment rate is almost 17 percent.

The Bottom Line

As mentioned earlier the economy must generate approximately 125,000 new jobs per month to keep up with the expanding population. 8 million people have lost their job in the latest recession. To employ all these people over the next three years, the economy must generate another 222,222 jobs per month. The U.S. economy is a long way from reaching that level.

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/

Copyright © 2010 Hans Wagner

If you wish to learn more on evaluating the market cycles, I suggest you read:

Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.

Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling.  One of the best, easy-to-read, study of stock market cycles of which I know.

The Disciplined Trader: Developing Winning Attitudes by Mark Douglas.  Controlling ones attitudes and emotions are crucial if you are to be a successful trader.


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