The Labor Market
In September 248,000 new jobs were created in the U.S. 🙂 The national unemployment rate dropped from 6.1% to 5.9%, the lowest since 2008. This must mean we’re almost back at pre-recession, full employment right? Well if you ask people on the streets how they feel about the strong labor market recovery, many of them will not know what you’re talking about.
The Chicago PMI which is a confidence indicator for businesses dropped to 60.5 in September from 64.3 in the previous month. The Conference Board published its Consumer Confidence survey and they were expecting 92.5 in September. However the actual number was only 86 🙁 So why is there a disconnect between the employment data and how people really feel about their finances? To understand this we simply have to dig a little deeper into the numbers.
Read Between the Lines
Compared to Canada’s high unemployment rate of 6.8%, the U.S. appears to be quite smug sitting at just 5.9%. 😛 However the unemployment rate does not account for people who are no longer looking for a job. And in September 315,000 people in the U.S. dropped out of the labor market. The labor force participation rate is now at 62.7%. This is the lowest it has been in 36 years! The last time this many people was out of work relative to the population size was back in 1978. This is why so many people are still frustrated with the job market, and don’t believe that the U.S. economy has recovered. The number of jobless people rose to an all time high of 92.6 million last month. That’s 92.6 million people not paying any income tax. That’s more than 1/3rd of everyone who could be working, but aren’t. 😯
And if we look at the types of jobs which were created in September, most of them are low quality, part time positions. 🙁 Many are low paying service jobs like in the restaurant and hospitality industry that can’t be outsourced to India, or be replaced by robots, yet. 🙄 An increase in part time positions also skews the employment data. A company can lay off a full time employee who works 40 hours a week. Then replace him with 4 new part time workers doing 10 hours a week each. The labor output (40 man hours a week) is the same. However the number of net jobs created in the economy would increase by 3 even though overall prosperity and productivity would remain the same. This gives a false sense of economic recovery. Don’t be surprised if you see two different greeters the next time you visit a Walmart. 😉
So now we know the unemployment rate headline doesn’t really mean anything by itself. A lower rate can be a good sign, but not when it’s for the wrong reasons like last month. 🙁 Be prepared for sluggish growth in both U.S. and Canada for the next 6 to 12 months. The International Monetary Fund (IMF) is urging governments to spend more money to help stimulate the global economy. But are people ready to pay higher taxes? And how can we make sure governments can invest our tax dollars in the most effective way? It was wasteful public works spending that made Japan one of the highest indebted countries in the world. They built parallel roads that were commissioned by different ministries. Talk about redundancy. 😛
Random Useless Fact: