John Mauldin: An Improving Economy, But Where Are the Jobs?
Mauldin's newest letter is a very good read. To be clear and fair, he points out the bullish economic developments (and there continue to be many). Many of the manufacturing surveys (ISM, Empire, Philly, etc.) still show improving conditions that are on uptrends. But the fact that this is occuring without an increase in jobs is disconcerting. He also digs into this topic a bit deeper, and it is worth highlighting
A Random Walk Around the Frontlines
By John Mauldin | February 19, 2011
But Where Are the Jobs?
And that lack of optimism is showing up in very weak job growth. While January’s abysmal number is likely due to weather and we should see a much better number for February, it is still not getting us the jobs we need. With governments cutting back on employees, it is likely we will need to see as many as 125-150,000 jobs a month just to keep up with population growth.
Ben Bernanke spun the recent drop in the unemployment number like this:
“Following the loss of about 8-3/4 million jobs from 2008 through 2009, private-sector employment expanded by a little more than 1 million in 2010. However, this gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market. Notable declines in the unemployment rate in December and January, together with improvement in indicators of job openings and firms' hiring plans, do provide some grounds for optimism on the employment front. Even so, with output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” (Hat tip: David Kotok)
The recent drop in the unemployment rate was not due to those million new jobs he referenced above, however. It was entirely due to rather dramatic drops in what is known as the participation rate. At the risk of repeating myself, if you have not looked for a job in the last four weeks you are not considered unemployed. You are not “participating” in the labor market. Look at the next chart and notice the significant drop since the onset of the recession.
That takes us to the next chart, which shows total civilian employment. Note that the total number of jobs, since we began to create jobs in late 2009, has risen by about a million and then gone sideways for the last six months or so.
It was not job creation that lowered the unemployment rate. It was people being so discouraged about the prospect of finding a job that they stopped looking. When and if we do see job creation, those people are going to decide to look for jobs again. And that means we could see a positive jobs report for months on end and not really attack the unemployment rate. It is a false measure in the current economic environment. The real measure is the one in the last chart, the total number of jobs.