Before You Get Too Worked Up About That Jobs Number ...

Markets tumbled early this morning after May's jobs report fumbled big time. Just 54,000 jobs were created last month -- a gain of 83,000 in the private sector, and a decline of some 28,000 government jobs.

This was ugly. We need about 150,000 jobs added every month just to keep up with population growth. You can already hear the chatter: Just like last summer, rumblings of a double-dip are springing to life. The economy's slowing. Jobs are fleeting. Time to worry?

Maybe. Maybe not. No one can predict these things. Keep the numbers in perspective, though. It's perfectly normal for monthly jobs numbers to bounce all over the place, taking huge drops even during strong economic times.

Source: Bureau of Labor Statistics.

With every blip in this chart came fears and screams of a slowing economy. Very, very rarely were those fears proven accurate. Even in the best of times -- mid-'80s, late '90s -- the numbers don't go up in a straight line. It's just not how these things work.

Keep in mind, in a country with more than 300 million people, monthly jobs figures fluctuate by a few hundred thousand in a good month -- a rounding error at best. The changes are so small in relation to the entire economy, and the statistics used to calculate the changes are so imperfect, that one month's figures shouldn't be taken too seriously. Initial figures are almost always revised, after all. More important is the trend in an average reading over three to six months. Even with today's terrible number and downward revisions to previous months, that average comes out to a gain of 150,000 jobs a month for the last six months.

Is that good? No. It's barely enough to keep the unemployment rate flat. Even so, you can't simply look at today's number and declare that we're falling into a new slowdown.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (18)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 03, 2011, at 2:15 PM, jimmy4040 wrote:

    You've seen a lot of talk in the media this week discounting the possibility of QE3. That means we're getting very close to it's implementation in some form. Bernanke has chosen to ride this horse, so he's not going to let the administration fail. Bet on the Fed fulfilling their employment mandate in some form by the beginning of fall.

  • Report this Comment On June 03, 2011, at 5:11 PM, TMFGortok wrote:

    Great article. I disagree with the assertion that we cannot predict whether or not the economy is slowing. The economists that follow the Austrian school of economics has done a rather remarkable job of predicting recessions. See: http://www.lewrockwell.com/eddlem/eddlem38.1.html among many, many others.

  • Report this Comment On June 04, 2011, at 10:02 AM, drillerjim101 wrote:

    As a small business owner, I can tell you with certainty that the poor job numbers are not just a blip on the charts. This administration just last week assured House Democrats that there would be increased taxation on successful business owners.

    It is the fear of higher taxes and more costly regulation of small business that causes the Mom and Pop operations to hunker down.

    There will be no significant improvement in the jobs numbers until a new administration takes office that understands the needs of small business.

    Jim

  • Report this Comment On June 04, 2011, at 7:37 PM, clarkvb wrote:

    The problem is that our economy is contracting, especially spending. People and businesses are not buying. With all of the effort to reduce the federal and state budgets, it takes more dollars out of circulation. People cant spend what they don't have. Lowering taxes is a mythical panacea.

    Look how many taxes have been lowered in the past decade: the economy has not expanded. For example, look at the Ohio experience. Taxes continue to be reduced and jobs are still leaving Ohio. Sooner or later businesses will not look to Ohio as its infrastructure will be destroyed.

    And we're in an economic tailspin. Sooner or later, the spending less model will decrease government services: then who will fill the potholes.

    Historically state and the federal governments have contributed to our standard of living by funding programs in response to the changing needs of our country. We should concentrate on building upon our strengths rather than tearing them down.

    Unfortunately the private sector is slow at best to respond. Consumer gimmicks such as cellphones contribute little in defining our economic well-being.

  • Report this Comment On June 04, 2011, at 8:38 PM, TMFHousel wrote:

    <<The problem is that our economy is contracting, especially spending. People and businesses are not buying.>>

    Real consumer spending is at an all-time high:

    http://research.stlouisfed.org/fred2/data/PCECC96.txt

  • Report this Comment On June 04, 2011, at 11:24 PM, drillerjim101 wrote:

    Anyone who believes lowering taxes will not encourage small business owners to spend and invest in their companies has never owned a small business with at least 10 employees. Lower corporate taxes will be a huge first step in job hiring and investment spending. Always has been. Always will be. The US has one of the highest corporate tax rates in the world. And the hyper regulatory environment of the Obama administration will continue to crush small business owners. We small businesses will continue to hunker down until some semblance of sanity returns which actually ENCOURAGES business rather than view business as the enemy.

  • Report this Comment On June 05, 2011, at 11:29 AM, BBG8 wrote:

    Of course taxes impact business decisions. However, in general, a business first has to make profits and then it pays taxes. If a company could make an investment that produced a

    $ 1,000,000 profit and then paid $ 350,000 in taxes it would still get to keep $ 650,000.

    It seems more likely that a company would hesitate to make the investment because it is unsure that it will be profitable not because it is worried about paying the taxes on its profits.

  • Report this Comment On June 05, 2011, at 3:51 PM, drillerjim101 wrote:

    All money paid in taxes lowers profits. Lower profits mean less likelihood a small business will take the risk. Also, most people don't realize how much work is involved to make a profit. It requires much blood, sweat, and tears. And many many more hours which could be spent with family.

    Dangle the carrot of higher profits to Mom and Pop and they will make the necessary sacrifices....AND hire more workers. The best way to do that? Lower taxes. Next best way? Lower regulatory oversight. This administration seems bent on doing the wrong thing on both counts.

  • Report this Comment On June 05, 2011, at 9:09 PM, BBG8 wrote:

    True, but in the 70s when taxes were considerably higher than they are now, people were at times making stupid economic decisions to avoid paying taxes, but still wiling to put in the blood, sweat, and tears, and even with their best efforts many failed.

    The problem with the corporate tax rate is that other countries have lower corporate tax rates and multinationals move and keep their cash abroad rather than bring it to the US.

    Mom and Pop operations never had that option.

    The problems we are facing go way beyond the tax code. From what I can see, Mom and Pop would just like to have enough customers to come in to buy their product or service to survive.

    Would you please tell me how regulations and the tax code impede your progress as a small business man.

    I have been connected to small business since 1973, I have been involved with the impact of the tax code since 1977 and I understand what you say about blood, sweat, and tears. (By the way blood sweat and tears happens in other segments of work life also).

    If you would be so kind to tell me what tax and regulatory impediments stand in your way I would be happy to help you find solutions, if I can, free of charge.

    We are all in this boat together. We have to find solutions together. Politicians and party rethoric will not get us where we need to go.

  • Report this Comment On June 05, 2011, at 10:28 PM, drillerjim101 wrote:

    You can start with OSHA. Then move on the EPA. Then tell me how I can provide health insurance for all employees to satisfy Obamacare regulations. Then start with simplifying the tax code. Then you can address draconian pension reforms which change every 3 months. Then you can begin with tort reform to keep the lawyers at bay. Then take on the built in huge franchise tax increases, workers compensation tax, and the Dept. of Labor. Ever have a fired employee go straight to the unemployment agency so your unemployment taxes go through the roof? I have to hire additional employees just to deal with the additional paperwork required by state and federal agencies.

    My friend, the odds have increasingly become stacked against us Mom and Pops. That is why the unemployment numbers refuse to budge and will not until real tax reform cuts business a break and regulations begin to ease off. I could go on, but I trust you see my point.

    I appreciate you offer of help but you really don't want the job.

    Let's start with an administration and congress truly sympathetic to small business...the backbone of our economy.

  • Report this Comment On June 06, 2011, at 12:59 AM, xetn wrote:

    You should not overlook the impact of the minimum wage, which eliminates many poorly educated and inexperienced workers. We now have college grads serving coffee at Starbucks and many others working part-time.

    Many of the jobs that have been "created" have been low pay service jobs. Manufacturing jobs, traditionally the higher paying jobs, have been moving off-shore because of high taxes and regulations that place a huge burden for compliance.

    We have yet to see the impact of Obamacare.

  • Report this Comment On June 06, 2011, at 2:12 PM, TMFAleph1 wrote:

    The head of the BLS appears to offer a counterpoint in an interview with the BLS:

    US data chief warns on employment, FT, Jun 5

    http://www.ft.com/intl/cms/s/0/515bb2d8-8fa1-11e0-954d-00144...

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