June 04, 2010

The Real Recovery Is Still About Jobs

The US employment report was the most anticipated economic info for the week.  Non-farm payrolls rose by 431,000 in May, lower than the consensus forecast for a 540,000 rise, but at least the unemployment rate fell to 9.7%. As the Bureau of Labor Statistics reports:

Total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010, the U.S. Bureau of Labor Statistics reported today. Private-sector employment changed little (+41,000). Manufacturing, temporary help services, and mining added jobs, while construction employment declined.  The unemployment rate edged down to 9.7 percent.

In reality then, this is a rather gloomy employment report.  Stripping the over 400,000 temporary jobs for the Census 2010, things haven’t really improved.  The US needs to create about 150,000 new jobs each month just to keep up with the (still) growing demographics; so in real terms, this represents a net loss of jobs for the month of May.  Looking ahead then, with several million new graduates entering the labor force this summer, employment still presents a major uphill battle for the US economy. 

You may recall that we dissected the US Budget forecast earlier this year (Market Insights 6 February 2010). We were looking at the projected improvements in employment data, assumption of which many of the economic and fiscal forecasts were based upon.  The chart below reflects those very optimistic views.


In keeping a positive attitude one could say that these employment improvements are still possible, particularly if enough incentives are provided for the private sector to hire again. 

However, there are two very big hurdles to take.  For one, demographic trends are not going to change drastically in this decade i.e. more new job entrants coming to the labor market while older people are forced to delay retirement for economic reasons. 

Equally concerning is the number of long-term unemployed.  As of last month, it hit yet another record wherein now 46% of the unemployed have been out of work for more than 27 weeks – see graph below.


In conclusion, there will be no real sustainable recovery until enough private sector jobs are created and a solution for the long-term employed is found.

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