Unemployment Report Worse Than It Looks
"Nonfarm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. The increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. In September, job gains occurred in professional and business services, health care, and construction. Government employment continued to trend down."
So, the Verizon workers that were on strike in August were counted in August and then counted again in September. That's looks like double counting to me. However, if we strip those workers out we get to a 58,000 employment increase which was about in line to what we expected.
Furthermore, the employment data released by the Bureau of Labor Statistics (BLS) does a great job of hiding facts and details. Such as the number of people that have now been unemployed so long that they have run out of benefits and are just no longer counted. Then there are those that are counted that are working part time jobs because they can't find full time employment. The list goes on but one very real issue in the jobs report is that the average duration of unemployment has soared to 40.5 weeks which is a new "all-time" record. While the number of people participating in the labor force ticked up slightly this month, which is a welcome sign, the trend is sorely negative and it is a volatile series to say the least.
Unfortunately, the backbone of America's strength which is manufacturing, took a sharp decline of 13,000 jobs this month. This was expected as most of the Federal Reserve regional indexes are showing a decrease in employment as new orders have either remained stagnant or declined and backlogs are being worked through.
While declining government jobs at the end of the day is a good thing, government workers don't actually create anything of value for the economy, the problem is that they will provide an additional drag on the economy. These individuals will increase the labor pool looking for private sector jobs and many of them do not have adequate job skills to find high paying jobs in corporate America. As they run through their benefits and seek lower paying private sector jobs their demand on the economy will decline.
The real "situation" of unemployment is far worse than the headline media portrays as well. As stated above the U-6 number which includes all those unemployed, marginally attached and working part-time jobs for economic reasons jumped from 16.2% to 16.5% in September which is the highest level since December of 2010. The chart shows the employment level versus its long term linear trend. As you can see not only are we well below the long term trend of employment since 1948 the percentage of deviation from that trend is at unprecedented levels. The household survey showed a gain of 398,000 jobs but it was almost entirely temporary jobs. Those working part-time for economic reasons rose 444,000 to stand at 9.3 million which is the highest level in a year.
Of course, the real issue is how all of this ultimately relates back to investments. The stock market maintains a fairly good correlation to the level of employment to population for the obvious reasons: 1) less employment means less income and less spending and weaker economic growth; and 2) higher levels of unemployment relative to the population means less participation in the stock market itself. Therefore, with the population in the U.S. continuing to increase while employment remains low due to the drag of the deleveraging cycle we will continue to be trapped in the Japan syndrome of a stagnant market returns for a long time to come until the excesses have been expunged from the economy.
The employment report is very suspect given the extent of slowing in almost all other indicators and the declines in consumer and business confidence. We will see how well these numbers hold up in coming months.