Economics, U.S. Economy

Miserable May jobs report suggests U.S. in recession red zone

[THIS POST WILL UPDATE AT BOTTOM OF PAGE AS EVENTS UNFOLD ...]

The May jobs report was a complete and utter disaster for the economy and, perhaps, President Obama’s chances for reelection.

Employers created just 69,000 jobs last month, the Labor Department said on Friday. That’s the fewest since May of last year. Economists had been expecting nonfarm payrolls to increase by 150,000. (In fact, the result was lower than what any economist polled by Reuters had predicted.)

Moreover, companies added 49,000 fewer jobs than previously estimated in March and April. Talk about a slowdown. The average monthly gain was 226,000 in first quarter vs. an average of just 73,000 in April and May.

Oh, and the U-3 unemployment rate rose to 8.2% from 8.1%. The broader U-6 gauge, which also measures underemployment, rose to 14.8% from 14.5%. The labor force participation rate did, finally, tick up to a still-low 63.8%, lending credence to the idea that the shrinking workforce reflects discouraged workers and not just demographics. The econ team at Barclays Capital sums things up nicely (bold for emphasis):

The May employment report suggests that the labor market recovery has lost significant steam in recent months. In our view, this raises the likelihood that the Fed will embark on a renewed round of policy easing, although market developments and the tone of other economic data in the coming weeks remain important. … In the establishment survey, payrolls rose just 69k, well below the 150k we and the consensus had expected and the weakest since May 2011. The details were equally soft, not least the 38k downward revision to April (to 77k from 115k), which followed an eight-month sequence of upward revisions to the previous month. By sector, goods-producing firms cut 15k jobs, with a 12k rise in manufacturing more than offset by a 26k drop in construction. This can no longer be put down to weather effects to any significant degree so it would appear that construction employment prospects remain very weak … The picture of lost momentum was also evident in hours worked data. The workweek fell one tenth to 34.4 hours and aggregate hours worked rose just 1.0% 3m/3m, down from 3.0% in April. … Bottom line: A clearly soft report that suggests a loss of momentum in the labor market recovery across jobs, hours worked and the unemployment rate.

So what is the true state of the labor market?

– 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. 63.8% today—the U-3 unemployment rate would be 10.9%. (Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation rate due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?)

–  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 participation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.5%.

– 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 9.5%.

– We continue to be stuck in the longest period of 8% unemployment or higher since the Great Depression, 40 consecutive months.

– And, as the above chart shows — originally from Obama economists Christina Romer and Jared Bernstein in January 2009 –the current 8.2% unemployment rate is 2.5 percentage points above where Team Obama predicted it would be right now if Congress passed his trillion-dollar stimulus plan.

–  The median duration of unemployment rebounded to 20.1 weeks in May, and 42.8% were unemployed for longer than a half year.

– Total hours worked fell 0.2% on weakness in the work week.

– Average hourly earnings rose just 0.1%. Coupled with a very stable overall inflation rate, real wages were likely flat in May.

The big question now: Does this report suggest the U.S economy is heading into recession, especially given the sharp slowdown in global economic activity from Europe to India to, perhaps most worrisome, China?

Consider this: Last year, the U.S. grew at just a 1.7% pace. Research from the Federal Reserve finds that that since 1947 when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time. We are firmly within the Recession Red Zone.

The political implications are clear: If the White House wasn’t already in a panic about the spring swoon, it sure is now. Another Recovery Bummer. If you punch in a mild recession into the higher regarded Fair-Yale forecasting model, Mitt Romney wins 53-47 over Obama in the two-party vote share. But given the example of Jimmy Carter, who suffered a mild recession in his 1980 reelection year, the Fair model might be underestimating the damage to Obama from a double dip.

 

UPDATE 1 (10:09 AM):  From Matt McDonald over at Hamilton Place Strategies:

Last month, the President only needed the economy to add 146,000 jobs per month to get the unemployment rate below 8 percent if the labor force participation rate held steady, 250,000 if it returned to trend. With the bump in participation this month, the President now needs the economy to add 204,000 jobs per month if the labor force participation rate stays at 63.8 percent and 295,000 if the participation rate continues to rise back to trend.

UPDATE 2 (10:13 AM): And a great jobs chart from HPS:

 

Update 3 (10:20 AM): Citigroup:

Signs of extraordinary and lasting weakness in U.S. labor markets have been evident since the start of the expansion, including the severe duration of unemployment for many job seekers (see figure 3). No doubt, today’s data will strengthen arguments for additional policy support for the recovery which might be desirable for reasons including the potential for “hysteresis” (reduce skills and employability) of the long term unemployed.

 

 UPDATE 4 (10:31 AM): From Calculated Risk:

 Update 4 (11:00 AM):  Ominous analysis from JPMorgan:

The May jobs report was disappointing and demoralizing: employment increased only 69,000 and job growth the prior month was revised down substantially to 77,000. On top of that the average workweek fell a tenth to 34.4 hours and the trend in average wage growth appears to be slowing as well — all of which adds up to very slow growth in household labor income. The unemployment rate rose a tenth to 8.2%, though to be fair that aspect of the report isn’t quite as ugly as it appears insofar as it was pushed higher by an increase in re-entrants back into the labor force. Given the steady deterioration in labor market performance over the course of the year, our outlook for decent growth in the middle quarters of the year is now looking shopworn, and we will have forecast revisions out shortly.

Update 5 (11:05 AM): IHS Global Insight:

2012 is beginning to look horribly like 2011 – initial high hopes that the recovery was kicking into high gear, subsequently dashed.  … Although there is probably now some undershooting in seasonally sensitive sectors (for example in construction) after previous overshooting, the latest figures cast doubt on whether the economy has enough momentum to achieve even the 2.2% growth rate we had expected for this year. Given the uncertainties over the Eurozone crisis, emerging market growth, the US elections and the “fiscal cliff”, there are plenty of reasons for businesses to stay cautious in their hiring plans, even if surging gasoline prices are for the moment no longer on the list of things to worry about.

24 thoughts on “Miserable May jobs report suggests U.S. in recession red zone

    • You are mis-reading the chart.

      It was an estimate.

      It’s 99% certain unemployment would have gone significantly higher had we done nothing.

      • Republicans like bringing out the chart because they know that the majority of their supporters won’t realize that it’s based on an estimate made before we understood the extent of global economic crisis.

        It’s similar to their “Net Jobs are Negative Three Million” claim — it sounds good and they know that their supporters won’t realize the truth about the trend (namely, we lost 7 million until ARRA, and have gained 4 million steadily without fail since).

        • If they didn’t understand the extent of the global crisis then, after a year of campaigning on the economy, why should we believe they understand it now?

          • We shouldn’t automatically trust that the Obama team is the best team to lead.

            But nor should we automatically trust that the untested Romney team or the ideological idiots in the House know best either.

            Obama has something that Romney doesn’t: four years of experience being President.

            Y’all will callously say that his spending is terrible and taxes are too high but let’s be real: total government revenues right now as a % of GDP are even with Reagan’s era and a good bit less than the heights under Clinton and Bush Jr. So taxes aren’t any more of a barrier to our economy than they were under Reagan, and are already less than most of the productive era of the 90′s and 00′s. Cutting rates isn’t going to spark some silly revolution of growth, please don’t be a naive conservative, please be a smart one.

            And what’s more: the spending has been predominately tax cuts packages and recession-related welfare growth. You know that money is being spent almost entirely in local communities on rent, food, utilities: you know, the stuff that supports Made In America style of jobs.

            I don’t think Romney cuts it. He has shit for plans except for “listen to the idiots in the House”. If he cuts, we go into recession. If he doesn’t, congratulations you have Bush 3.0 or Obama 2.0 or whatever. Then we democrats get to blame the next four years on you instead.

            Honestly my true hope for November is for Republicans to win the Senate and control the House and for Obama to remain President.

            A unified Senate against an opposition President provides a much more productive Legislation and a President who can act as a final check and balance against their more destructive ideological elements.

          • Chris,

            Four years experience, really?

            I have four years of experience being a citizen in Obama’s America.

            That’s a damn good reason to vote for Romney, isn’t it?

            Bain Capital was run a lot better than Grove Parc.

        • Neither scenario looks good for the Obama team…they ‘estimated’ that lighting $800 Billion on fire would work and have been proven wrong, or they so severely underestimated the extent of the crisis.

          Neither is a model of competence and neither gives anyone with an ounce of economic literacy a good feeling…

        • “We” understood? Conservatives (not Republicans) like to bring out the chart to show the result of 3 1/2 years of Keynesian idiocy disappearing into bundlers’ pockets. Flat divide your 4 million ‘gained’ jobs into $5.5T net new debt and tell me what you get…

          Here’s what “you” still don’t really understand. The global issues are the result of the same policies here in the States – governments have over-promised benefits, socialized corporate losses and privatized gains for cronies.

          • You seem to forget the benefits we all expect to be there when we need them come out of our own pockets every week when we are taxed. They aren’t over promising anything.

          • Bundlers always do well. In every party around the world. If you hate it, advocate for laws against it.

            And it’s not 3 1/2 years of Keynesian idiocy — we’ve been practicing it since at least as early as the 30′s.

            The stimulus worked — it prevented a massive recessionary spiral and curbed the worst of what was possible. The tax breaks and welfare spending has kept local communities running, as the money today is almost all spent on rent, utilities and food. I get that Republicans will deny that the recession could have been far worse had we not spent, but I understand why: denying the reality of basic economics is pretty easy. (Spending in local communities creates local jobs, increased welfare and stimulus funded tax break money is spent almost entirely in local communities. It’s very simple stuff).

            “The global issues are the result of the same policies here in the States ”

            Don’t be silly! Some of the strongest countries right now are BIG government. Holland? Denmark? They’re doing fine and are some of the ‘biggest’ governments around. How about the Austerity Conservative governments? UK did austerity: double dip recession. Ireland did austerity: still a miserable recession.

  1. “gained steadily without fail”???? Since at least 125,000 workers come into the work force every month, (I’ve seen several versions of this statistic) any month where less than 125,000 net new jobs are created represents a loss of available jobs. How many workers have come into the work force since 2009 to find no job available for them? Do you really call that success at creating jobs? It might not just be coincidence that the problems really started with the accession of a Democratic Congress in January 2007. And the depressing shape of that curve above compared to those of the other recessions/recoveries just may have something to do with the taking on of a huge debt burden squandered by this Administration to pay back political cronies. It will never be paid back and will lead to a Greek-style default. Maybe when it does Mr. Zero can pull out the Greek columns again and give an inspiring speech.

    • Oh get off your high horse. You think Romney bundlers won’t win big? You think the Koch Brothers would commit $400,000,000 dollars to beating Obama (mind you, the entire amount of money raised and spent by McCain in ’08) if they didn’t think they were going to get benefit out of that? Don’t be naive!

      As for the economy, yeah, it’s rough. It’s been a rough ride but we’ve turned -800,000 a month when Obama inheirited the Bush Recession and we’ve turned that around into about +200,000 a month. We haven’t had net job loss in over two years.

      The world is burning and we’re barely growing, and you criticize that it’s not fast enough. China spirals towards recession, India is stunting, the Eurozone is in a double dip recession, Japan is looking shaky, the UK has been a recession pretty much this whole time, Ireland is looking worse every day: and the United States has had positive growth for two years straight, posting job growth and expansion.

      Excuse me if I don’t crucify my leader for not steering us into an Austerity-fueled oblivion like the UK, Ireland and the Eurozone (for whom the conservative economics in the form of austerity enforced by Germany on South Europe has destroyed their economies and thus the market for German goods, bringing the entire Eurozone down with it).

      • The plan for economic growth of Obama, Pelosi and Reid has been to have unrestrained, budgetless government spending combined with massive borrowing and demands to raise taxes on investors and business while delaying permitting for energy production and mining and putting costly mandates on employers such as Obamacare that raise the cost of hiring people. While the public was willing to give this a try, it has not worked. It is now time to try lowing our world highest corporate income tax, speeding up the permitting process, reducing regulations that prevent business expansion and lowering mandates that raise the cost of hiring people. Hopefully, this will slowly raise revenues which combined with spending restraint from serious budgeting will give some reassurance to investors that the US is a responsible safe place to invest and create employment.

      • when Obama inheirited the Bush Recession.

        I just love that phrase, but unlike most who inherit anything Obama as a US Senator viewed the ‘will’ prior to accepting the inheritance. He had a choice and he knew what he was getting into and sold the American voters that he had the knowledge to get the car out of the ditch. Obama had the first two years of his term to call a tow truck but instead focused on healthcare.

        Excuse me if I don’t crucify my leader for not steering us into an Austerity-fueled oblivion

        A wound that requires stitches will eventually heal, it just takes longer and will leave a nasty scar. The fact that you call Obama your leader warrants my sympathy apology accepted.

  2. —- it’s based on an estimate made before we understood the extent of global economic crisis. —

    Who is this “we” of whom you speak? Many people understood the extent of the global economic crisis. You should be embarrassed, Chris, that your team leader did not understand it, and that fact caused him to make some very bad policy decisions which made things worse than they might have been. You are now willing to just excuse an “estimate” that was sold to the American people as fact? Pathetic.

    • Is this the part where you tell me that it’s all the democrats fault, even though Republicans controlled the House, Senate and Presidency from 2001 to 2007, during the majority of the bubble creation and almost right up until it pops?

      Hot potato economics! We burn it, and if you’re holding when the timer is up, you lose!

  3. European levels of government spending, borrowing, and regulation create a European-style economy – high unemployment, especially among the young; slow growth; dangerously high debt; frightened, timid businesses; and no plan or prospect for sweeping away the welfare state and its dangers. These morons cannot even pass a budget for three years and counting.

    • All of these conditions you’re citing exist in a period of historically low government spending. So other than being dead wrong, you’re completely right.

  4. i wonder if you would superimpose the great depression over the great recession as i am interested that simular government policies have the same results

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