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John Mauldin: An Improving Economy, But Where Are the Jobs?

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February 21, 2011 – Comments (11)

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

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http://www.johnmauldin.com/frontlinethoughts/a-random-walk-around-the-frontlines/
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.

11 Comments – Post Your Own

#1) On February 21, 2011 at 11:24 AM, ETFsRule (99.94) wrote:

Great post, very informative. I agree that the total # of jobs is a better indicator than the unemployment rate.

I'm still a little more optimistic on the economy than most people (although that's not saying much). I believe that unemployment is often a lagging indicator. As long as manufacturing and other economic indicators continue to improve, I think it is just a matter of time before companies start to hire.

Also, the increase in private-sector job openings is a good sign. The figure isn't where we need it to be, but it's headed in the right direction. The recent drop in that graph was probably just due to the terrible weather in January, as Mauldin mentioned in his article.

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#2) On February 21, 2011 at 12:21 PM, OneLegged (< 20) wrote:

I don't understand how weather could possibly cause emploment numbers to rise unless these snow storms lasted for months without abatement.  The process to apply and receive unemployment insurance benefits (and thus be counted as unemployed) takes several weeks to navigate.  Meanwhile wouldn't a snow storm require more manpower to shovel/clear snow and thus increase the rate of employment?

 It seems to me that when the weather is used as a reason to explain higher unemployment one is out of any other excuse to spin the data.

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#3) On February 21, 2011 at 12:34 PM, ETFsRule (99.94) wrote:

There are some discouraging signs too... for instance, most of the new jobs being created are low-wage jobs. This doesn't show up in most of the employment statistics.

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#4) On February 21, 2011 at 12:44 PM, ETFsRule (99.94) wrote:

"The process to apply and receive unemployment insurance benefits (and thus be counted as unemployed) takes several weeks to navigate."

This is true. That's why we don't see a big change in the unemployment figure for January... it will take some time to show up.

But we do see a change in the "new hires" and "job openings" for January. The economy really does slow down due to extreme weather. For instance the company I work for was closed twice last month (we got 12+ inches of snow both days). That means we lost almost 10% of our normal man-hours for the month (2 days off out of 21 normal working days). There were also some businesses in my state that had their roofs collapse. Plus lots of car accidents, etc.

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#5) On February 21, 2011 at 1:10 PM, leohaas (31.12) wrote:

#2: Applying for unemployment benefits is really as simple as filling out one form, on-line or at one of your state's DOL offices. Once you have submitted the form, you are counted even though it may take a few weeks before you receive your first check. Bad weather keeps some people from filing right away. That's a fact. But they will file a week later. That explains the wild swings in statistics. Big storm this week? Fewer applicants now, but more next week when the weather is a little better.

In general, employers use recessions to cut fat and to rethink their priorities. After  a recession, they hire for their new priorities. That is where most unemployed go wrong: they think that when the economy starts recovering, their old job comes back. It doesn't! But new jobs, requiring new skills, do appear. The unemployed should get themselves retrained for those new job skills. And be happy to jump on an opportunity paying a lot less than their old job. I've done this a couple of times in my career, and am only now back at the same level where I was just before being laid off in the dot com bust...

Also, this recession was the worst since the Great Depression. That makes the recovery a very long process. Deleveraging is still going on throughout the economy (think foreclosures, increased saving, decreased credit card debt, more cash on business balance sheets, less leverage at banks, higher standard to obtain mortgages and other loans, and so on), slowing down the recovery significantly. The result: the job cutting and rethinking of priorities as described in the previous paragraph was deeper than ever, and will go on until we're done deleveraging. So the need for unemployed folks to obtain the right skills, take a pay cut, and even relocate at their own expense is bigger than ever.

By the way, when we're done deleveraging is the time to really worry about inflation. I'm not so sure the FED can mop up all the excess money by then...

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#6) On February 21, 2011 at 3:36 PM, OneLegged (< 20) wrote:

ETFs, did the 10% loss of man-hours equate to any layoffs?

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#7) On February 21, 2011 at 3:45 PM, ETFsRule (99.94) wrote:

Nope.

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#8) On February 21, 2011 at 3:46 PM, OneLegged (< 20) wrote:

Look at the Labor Participation Rate chart above.  We aren't back to 2000 levels yet.  Less folks in the labor force then at the 2000 dot.com bust.  Don't foget that roughly 150,000 people per month newly enter the job force each month.  That's 1.8 million new workers per year and yet the paticipation rate drops?  What explains this?  Tons of people with massive trust funds?

 

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#9) On February 21, 2011 at 3:47 PM, OneLegged (< 20) wrote:

Thanks ETF.

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#10) On February 21, 2011 at 4:37 PM, ETFsRule (99.94) wrote:

"Look at the Labor Participation Rate chart above.  We aren't back to 2000 levels yet.  Less folks in the labor force then at the 2000 dot.com bust.  Don't foget that roughly 150,000 people per month newly enter the job force each month.  That's 1.8 million new workers per year and yet the paticipation rate drops?  What explains this?  Tons of people with massive trust funds?"

I'm going to assume you just hit your head or something. He explains what is going on right above that chart.

"Thanks ETF."

No problem!

I guess you must be right... and Mauldin must be wrong (along with every other economist in the world, even though they have decades worth of hard data to prove the effects of snowstorms on unemployment figures).

I guess it's just a coincidence that we saw the same thing happen in February 2010, when just as predicted, the snowstorms that month resulted in weak gains for the February employment figures — an increase of just 39,000 — followed by a sharper increase of 208,000 in March. Yeah you must be right, I'm sure that was a coincidence.

But we should never let the facts get in the way of a right-wingers "gut instinct" about how the economy works.

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#11) On February 21, 2011 at 4:59 PM, OneLegged (< 20) wrote:

I didn't hit my head, but I can understand how you thought that that might have been the case!  lol

 

I did a poor job of posing my question.  What I meant is; With all of these people not participating in the workforce, how are they surviving?  I understand some may be working under the table or living with realtives etc., but the percentage "not participating" equates to a very large number of people.  What do they do all day?

 Right-winger?  Where you referring to me?  Not even in the ballpark if you where.

 

+1 rec  Excellent discussion.

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