Any way you slice or dice it, the April jobs report was terrible—and terribly disappointing. Employers added just 115,000 workers to their payrolls last month, way below the 180,000 Wall Street economists were expecting. Hiring has now slowed in three straight months. Job growth in March and April averaged 135,000, down from an average 252,000 per month in the three months to February. As IHS Global Insight explains: “Prior job gains at over 200,000 per month were inconsistent with the modest pace of recovery in overall output – GDP was up only 2.2% in the first quarter. It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs.”
And JPMorgan put it this way: “The April employment report was softer than expected and signaled a downshift in labor market momentum.”
Sure, the official unemployment rate dipped a tenth of a point lower to 8.1%, but that’s only because people continue to drop out of the workforce at an alarming pace. That workforce shrinkage, as measured by the labor force participation rate, totally distorts the true unemployment picture. In fact, the participation rate is now at its lowest level since 1981! (For comparison purposes, the economy added 480,000 jobs back in April 1984, during the Reagan recovery.)
So what is the true state of the labor market?
1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.6% today—the U-3 unemployment rate would be 11.1%.
Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?
2. If you take into account the aging of the Baby Boomers, the participation rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the partipation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.7%.
3. Of course, the participation rate usually falls during recessions. Yet even if you discount for that and the aging issue, the real unemployment rate would be 9.3%.
4. If the participation rate just stayed where it was last month, the unemployment rate would have risen to 8.4%.
5. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labor market’s health, is still a sky-high 14.5%.
6. The employment-population ratio dipped to 58.4% vs. 61% in December 2008. An historically and alarmingly low level of the U.S. population is actually working.
7. And given that real disposable income has been flat the past two years, it stands to reason that many of the jobs being created are in low-wage sectors. Indeed, hiring in sectors such as retail and leisure has accounted for a whopping 40 percent of the jobs added over the past two years.
The labor market remains in sad shape—despite Obama White House claims that it’s “continuing to heal”—and it is unlikely to improve much if the economy continues to grow around 2% or so.
James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.
Pethokoukis was the business editor and economics columnist for U.S. News & World Report from 1997 to 2008. He has written for many publications, including The New York Times, The Weekly Standard, Commentary, National Review, The Washington Examiner, USA Today and Investor’s Business Daily.
Pethokoukis is an official CNBC contributor. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! Champion.
Pethokoukis can be reached james.pethokoukis@aei.org or follow him on Twitter @JimPethokoukis
What would the U-6 rate be if we had expended a significant portion of the $7 trillion spent in the Iraq and Afghanistan wars on domestic infrastructure or adding teachers and emergency personnel instead? What would the U-6 rate be if during slow economic times owners hadn’t rushed to introduce non-essential productivity improvements (self-checkout at grocery stores, for instance) that eliminate jobs, yet do not seem to lower consumer prices so much as to raise the owners’ profits?
By your logic, to protect buggy makers we should have prohibited the manufacture of the automobile? Or outlawed the microchip so we could protect the typewriter? If your comments could be realized, you would be forced to raise your own food to survive. On the other hand, in your case, that might be a sweet irony.
SorryCharlie1, I respect your view, but you didn’t answer my first question at all, while the examples you raise in your comments on the second question underscore my point:
Improvements in agricultural productivity in the late 1800s and early 1900s certainly caused massive unemployment — cured only when manufacturing picked up during and after World War II. I think it’s well established that recent changes in manufacturing productivity (think robots) are now bringing about a similar displacement, and add to our current employment woes. So tech/productivity gains are extremely important and beneficial, but not necessarily benign in respect to the subject of the author’s article — unemployment. I certainly love my car, my computer and my supermarket bought food as well as the next guy, and they bring benefit to the US economy broadly. Can we say the same (say) of having cashiers kicked out of jobs in the middle of a recession by self-checkout scanners? Or couldn’t that particular investment wait until the economy improves without materially slowing the march of progress?
Finally, I want to make clear that I’m not suggesting “prohibiting” or “outlawing” anything here, or even having government intervention. The “invisible hand” is driven by many factors including the sense and exercise of individual responsibility towards others.
What would it take to open trueembodients eyes to the disaster unfolding daily named Obama? Give US a rest, your argument is lame and irrelevant, I suspect just like yourself. What would the U-6 number be if the EPA would stop their over reach? How about if Zerocare was never passed? How about if the stimulus actually was designed to stimulate the economy, shovel ready jobs? How about if we didn’t fund the green energy bankruptcies, Solyndra? Your best argument is self checkout and ATM machines? REALLY? That’s your best? Corporations exist to make a profit, if they don’t they die and all employees lose their jobs. Stop worrying about “acceptable” profit margins and get your butt out of bed, get a job, and try to repay your country. You have the best lifestyle and options available in the world and you complain about fairness. Grow up!
Beautiful!!
Retard. You can’t cut taxes and start two wars. That’s what dwindled away the surplus the US achieved during the Clinton administration. You know bush screwed us.
How is a war any different than any other entitlement program? Government money is just going to defense contractors (jobs) and soldiers (more jobs) instead of somewhere else. As a Democrat, you should love that.
Hey, Moron, do you know the difference between debt and a budget deficit? Clinton had a budget surplus, which just means that there was more coming in than going out (because the House forced him and because of the tech bubble). The U.S., however, has been in debt for decades. Yes, Bush added debt, but nowhere near as much as Obama. Obama sucks: you know it, I know it, and now the whole world knows it.
Clinton didn’t actually have a budget surplus.
“Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation due to rising retirements.”
This article includes a plot of the employment-population ratio of various age groups showing that the aging population is not the cause of the stagnant employment-population ratio.
http://news.investors.com/article/610204/201205031803/old-workers-in-the-way.htm?src=HPLNews
Unemployment will get worse from here on. Many companies have already blown through their 2012 budgets and are now in the red. Companies are now cutting any and all expenditures including hiring. Even filling vacant positions is being frozen.
The real unemployment rate is close to 20% .
IT’S MUCH HIGHER, the article fails to address under-employment! I personally know three people laid off from their jobs of 10, 12, 13 years respectfully, who are currently waiting on tables
@All; The book “The End of Work” by Jeremy Rifkin gets to one actual source of the problem (the budget being the other). I read it, but I don’t agree with the premise of the “third sector” (just more welfare) and some other solution can/should be found. Cutting the work week to 20 hours (not the pay) would conceivably make 2x more jobs. Obviously this would have to be done over an extended period of time, 10-20 years. As the week is shortened incrementally, the “work week” pay has to be scaled to make a living wage (not minimum wage). While minimum wage would also have to be scaled commensurate with the decreasing size of the “week” it should never be considered a “living wage”, it was never meant to be, hence the name “minimum wage”. And yes, there are some flaws to this but it is something, if you don’t have something constructive in alternate ideas, I wouldn’t waste my breath here. There are other things that can be done (budgetary) such as, decrease the Federal budget, decrease Federal pay so that it is commensurate with the private sector (both pay and benefits), lengthen the Federal career work time so that retirement is commensurate with the private sector, decrease the size of the military, close the Dept. of Education and others, decrease corporate taxes (please, if you don’t understand that corporate taxes are part of COGS, hence the remaining profit margin, then don’t respond in your ignorance)……….there are many things that can be done, but then everyone has a dog in the fight, or more appropriately a pig at the trough. Just a constructive thought. Survive well. Enjoy.
Unemployment in Creative fields like Design has always been Very high.
I always liken it to trying out for a part as an actor- there are 100 people standing in line, even for the worst paying jobs.
These times are the toughest I’ve seen in 40 years in this industry. There are no new jobs being created and companies are going out of business left and right.
Anyone over 60 that I know who loses their job has taken early “retirement” because they have no choice.
The situation is so much under reported- I’m sure that the 8.1% number is a downright fabrication.
Im not an American so I have an opinion that is totally unbiased. I truly believe that Clinton was the man who paved the way for china to take many of the manufacturing jobs away from Americans. Please correct me if I am wrong but I do believe it was Clinton who signed the trad agreements. Then Walmart and others took advantage of the situation. The average American can blam themselves too. Everyone loves a deal but at what/who’s expense. If your job is now in china you dont benefit from those low prices.