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May Jobs Report Is ‘Disappointing’

Courtesy of Econophile

From The Daily Capitalist

President Obama has now become a professional economist, because like most professional economists his unemployment forecast was wrong.

While the headline from the Wall Street Journal this morning was "Census Hiring Bolsters U.S. Payrolls," nothing could be farther from the truth. Private sector job growth in May was anemic, coming in at only 41,000. The total number of new jobs was 431,000, but temporary Census Bureau hiring accounted for 411,000 of those jobs. Note that the difference between the two numbers doesn’t add up because net government employment was less than that because state and local governments shed jobs. [I now see that the latest online edition of the Journal has re-entitled their story, "US Private Sector Added Few Jobs In May."]

The consensus among economists surveyed by the Journal and Bloomberg expected 515,000 and 536,000, respectively.

“Job growth is going to be anemic,” said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.

“Remember, it requires 150,000 to 200,000 jobs in order to reduce that unemployment rate, which is a key focus for the administration,” he said in an interview with Bloomberg Radio’s Tom Keene on “Bloomberg on the Economy.”

These numbers are disappointing considering that April showed modest private employment growth of 218,000 jobs in April and 230,000 jobs in March. Overall the unemployment rate dropped from 9.9% to 9.7%. The broader "U-6" index dropped to 16.6% from 17.1%. This is not what was expected. It is discouraging to see the Employment-population ratio decline YoY from 59.6  to 58.7 (May 2009 to May 2010).

The U-6 report is interesting in that while it fell, it is likely that the fall was a result of people dropping out of the labor force because they can’t find employment. The civilian labor force participation rate decreased by 0.2% to 65.0%. About 6.8 million people have been out of a job for more than 27 weeks, or 46% of the unemployed. This has to be considered in light of population increases: while the population grew 170,000, 322,000 dropped out of the labor force.

Some of the BLS report highlights: manufacturing +29,000, temps +31,000, mining +10,000, health care +8,000, construction -35,000. These numbers well under the levels seen for the last several months. Temporary help services has risen by 362,000 since September 2009.

Mrs. Romer, the President’s chief economic advisor was on Bloomberg TV this morning, smiling broadly, and saying that we have to look at the trend which is positive and that any month with jobs growth is a good thing.

Even she was not saying that Census hiring created real jobs. As we all know, government jobs are not real "jobs" in the economic sense. The government produces nothing and it pays its workers with our money. Every dollar taken by the government out of the economy reduces the private economy’s ability to create real jobs.

Here’s an interesting graphic from the Journal:

The labor workweek has increased from 34.1 hours per week to 34.2 hours; hourly wages increased by 0.3% ($22.57) in May versus zero percent ($22.50) for last month. Which means employers are pushing existing workers to make them more productive rather than hiring new workers.

These data are consistent with a flattening trend in the economy. We are not seeing job growth because employers are not yet conceding to the popular notion that we are in a recovery. While it is true that employment increases at the mature end of the recovery cycle, the present recovery is not in line with past recessions. Generally I tend to ignore data related to past recessions because (i) every cycle is different, and (ii) this cycle is more different than previous cycles. We need to keep an unclouded eye on what is happening in this cycle and I believe it is clear that the economy is stagnating.

There can never be a recovery based on fiscal and monetary stimulus. It hasn’t happened in the past and it is not happening now, despite Mr. Obama’s claim yesterday that "his" policies are working. What we are seeing with an unclouded eye is that the "recovery" cycle is a mirage.

Left to its own devices, the "economy," that is the actions of millions of business folks, do what they need to in order to survive. First to happen in a down cycle is that retailers and wholesalers get rid of inventory. That has been done. Then, because the other 80% or so of us have jobs, businesses then restock to service ongoing business, albeit reduced. That is almost complete. This part of the cycle induced manufacturers to step up production to meet the resumed demand. Without real consumer demand reviving, manufacturing will stall out and maintain a modest level of production to meet modest demand. That is happening now.

There is another factor to consider and that is the impact of fiscal stimulus. At some point the money the government spent to "revive" the economy runs out. Since it was used for mostly useless projects, the effect is temporary and when the money is spent, the empty shells of these projects produce nothing and all that is left are the debts incurred to pay for them.

As I discussed in my article, "What Will Drive Manufacturing":

The only thing that will drive a recovery is the liquidation of overvalued assets, the write down of bad debt by banks and consumers, and increased savings by consumers. The government is doing everything they can to prevent that from happening.

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