Highlights and Lowlights From April's Jobs Report

At least we're not Europe, you might say. The U.S. economy created 115,000 jobs in April, the Bureau of Labor Statistics reported on Friday. That's slow and disappointing, but it's progress -- something most of the developed world knows nothing about these days.

What should you make of the numbers? It can't be repeated enough that initial reports need to be taken with a grain of salt. Statistically, the margin of error in monthly jobs reports is plus or minus 100,000, so April may have been much better or worse than it looked. Friday's report showed February and March's jobs numbers were revised up by 53,000. April's numbers will likely be revised one way or another in the coming months, too.

More meaningful is a six-month average. The economy has created an average of 197,000 jobs a month since last October, with the private sector generating 207,000 jobs a month (declines in government jobs lowered the overall average). That's actually pretty good. The average job-creation number in any given six-month period over the last 50 years is 119,000 a month. Over the last decade, it's 11,000 a month. The economy added an average of 85,000 jobs a month during the 2002-2005 recovery -- and many were government jobs as the private sector continued to languish. If this were a normal economy, the kind of jobs growth we've seen over the last six months would be healthy and happy.

But this isn't a normal economy. So many jobs were lost from 2008 to 2010 that today's normal growth rate feels downright awful. There are still 4.9 million fewer jobs today than there were at the end of 2007. Add in population growth during that period, and even with decent jobs growth lately the hole in our labor market is perhaps 7 million jobs deep. If we continued growing jobs at 200,000 a month, the unemployment rate wouldn't fall to 6% until 2021. That is probably the most important job statistic you can know these days.

And many of the new jobs created lately are in low-paying industries. One-third of new jobs created in April came from food services and temporary services. "Administrative and waste" contributed another third. Average hourly earnings among all employees are up 1.8% over the last year -- below the rate of inflation. Part of the loss in earnings has been made up with an uptick in the average number of weekly hours worked, but that's a tough way to get ahead in life. There is no question about it: It stinks for tens of millions of Americans.

Now some technical stuff. The unemployment rate fell to 8.1% in April from 8.2% in March. Using a broader unemployment rate that includes those who have given up looking for work or are involuntarily working part time, the unemployment rate held steady at 14.5%.

The difference between those two figures underlines the fact that millions of Americans have simply stopped looking for work, and thus aren't counted in the traditional unemployment rate. The trend has become so bad, some say, that the best measure of unemployment is the labor force participation rate, or the percentage of the working-age population that is either employed or unemployed but looking for work.

Sure enough, the labor force participation rate has dropped big time in recent years, suggesting that legions of Americans who used to be active participants in the job market have given up. The participation rate in the 1990s was often near 68%. Today it's about 63%.

But economists had been predicting most of that decline for years, well before the recent recession began. How did they foresee it coming? A lot of the decline has nothing to do with a weak economy. It's about demographics and education. As the baby boomers age, retirement rates are rising. And as higher education becomes more necessary, more are spending their teens and 20s in school instead of working. Those two facts combined would cause the labor force participation rate to fall even if the economy were booming. The finance blog Calculated Risk recently showed the actual labor force participation rate compared with a 2002 projection by sociologist Robert Szafran, which tells the story:

Indeed, the Bureau of Labor Statistics keeps track of not just how many people drop out of the labor force, but why they dropped out. It does that the old-fashioned way: It asks them if they want a job or not. Even though the number of Americans not in the labor force has increased by more than 10 million since 2007, those who left the labor force and claim to want a job has increased one-fifth that amount, or 2 million. In the last year, the number of Americans age 16 and up not in the labor force increased by 2.7 million, yet those claiming to want a job declined by 140,000.

But those are small wins and clarifications amid what is clearly a painfully weak jobs market. People worry about politics and deficits and education and the environment, but without a job, little else matters. Right now, there just aren't enough.

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


Read/Post Comments (9) | Recommend This Article (14)

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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 May 08, 2012, at 10:38 AM, matthiasxc wrote:

    Morgan,

    I'm extremely disappointed in your manipulative data reporting. Let's look at the most egregious claims and debunk them.

    "The average job-creation number in any given six-month period over the last 50 years is 119,000 a month."

    But not when you adjust for population. 119,000 new jobs a month would obviously be way better in 1963 when the US population was 50% of what it is now. When you adjust for current inflation, the average is 189,000 per month. That puts current job growth right at the average.

    "The economy added an average of 85,000 jobs a month during the 2002-2005 recovery."

    This is simply untrue. I did the calculations and I see what you did: You took all the monthly jobs changes from 2002 - 2005 and averaged them. But the recovery wasn't in 2002-2005. The recession didn't end until 2003. So you averaged in job gains *from a recession* to use as your baseline for good job growth.

    If we look at the 2004-2006 recovery (when the recovery was actually happening) we find an average of 184,000 jobs per month. That puts this 6 month average as a little better than the 36 month average of 2004-2006.

    This isn't to say our current situation is dire, it isn't. But it isn't rosy either. In previous recessions (early 80's, early 90's) we saw jobs bounce back at much higher rates than this even when the recessions were not as severe.

    I expect better data reporting from Fool correspondents. That I immediately smelled selective data reporting is worrying to me.

  • Report this Comment On May 08, 2012, at 10:50 AM, TMFMorgan wrote:

    Thanks,

    <<But not when you adjust for population. 119,000 new jobs a month would obviously be way better in 1963 when the US population was 50% of what it is now.>>

    When talking about the relevance of monthly job-creation numbers, what matters is the monthly increase (or decrease) in population, not the total level of population. And the monthly increase in population has not accelerated over the last 50 years (in fact, it's far lower today than it was in the '60s).

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

    <<The recession didn't end until 2003.>>

    It ended in November 2001:

    http://www.nber.org/cycles.html

    I understand and appreciate your rebuttals, but there's a difference between "manipulative data reporting" and "I see things differently."

    -Morgan

  • Report this Comment On May 08, 2012, at 10:54 AM, TMFMorgan wrote:

    More importantly, perhaps, what matters is the monthly increase in the labor force participation level (controls for demographics by only including those of working age). That, too, hasn't accelerated over the last 50 years:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

  • Report this Comment On May 08, 2012, at 11:24 AM, TMFMorgan wrote:

    Sorry, rephrasing one more time: Jobs growth of 119,000 is more meaningful today than it was in the 1950s because the monthly increase in the labor force was larger in the '50s than it is today.

  • Report this Comment On May 08, 2012, at 12:41 PM, mdk0611 wrote:

    I'm trying to get a handle on why the civilian labor force in the 50's increased by the same number as it does today. That was the time the Depression "Baby Bust" was entering the job force. I can only think of 2 possibilities, veteran's entering after a post-Korea reduction in our armed forces or the beginnings of the increased number of women. Did the data you looked at suggest an answer?

    Also, the reduction in public employess was inevitable. Between the need to keep state and local taxes from exploding and the simple truth that technology allows most workers to be more efficient it had to happen. If done correctly, it would have been achieved through attrition during the good times. Unfortunately, governments waited untik their hands were forced because of the recession.

  • Report this Comment On May 08, 2012, at 1:15 PM, matthiasxc wrote:

    Morgan,

    I don't want to get pedantic here, but if we're defining the end of the early 2000's recession as the end of 2001, then comparing the following 3 years of job growth to the last 6 months is apples-to-oranges.

    The "formal" end to the 2001 recession was November 2001. We continued to hemorrhage through 2002 and into 2003. Similarly, the formal end to the most recent recession was June 2009, but we continued to hemorrhage jobs through much of 2010. If you average the job growth since the recent recession ended, you get 57,000 jobs per month, lower than your 2002-2003 recovery number. That is apples to apples.

    An oranges-to-oranges comparison would be comparing the 6 month rolling average 2.5 years after the recession ended. Again, we get similar numbers: 191,000 jobs per month average for March-August 2004 (33 months after the recession ended).

    The conclusion from both these comparisons is the same: We're looking at about the same job creation numbers that we were looking at 8 years ago. This recovery is similar to that one in many ways (except that we're recovering from a much more severe recession).

    But instead, you compare a full average (including post-recession job loss) with a rolling 6 month average. Apples-to-oranges. This delivers a less-than-accurate impression of our current jobs situation and a poor reading of the data.

  • Report this Comment On May 08, 2012, at 1:50 PM, TMFMorgan wrote:

    I will concede that the comparison could have been framed better. But I still disagree with your numbers. Average job gains from Dec. 2001 + 34 months is 41,000. From July 2009 +34 months is 75,000. Still backs up the argument that the current recover is stronger.

  • Report this Comment On May 11, 2012, at 4:07 PM, WINESBYGEORGE wrote:

    Something has always confused me : the admin. touts the fact the 120,000 were "created last month" on page one and to most that is great news. Then ,on page two , I read that 350,000 people signed up for unemployment for the FIRST time last month. Doesn't this indicate that 230,000 people lost jobs and that would cause the unemployment rate to go up ?

  • Report this Comment On May 11, 2012, at 5:48 PM, fredgei wrote:

    "the admin. touts the fact the 120,000 were "created last month" on page one and to most that is great news. Then ,on page two , I read that 350,000 people signed up for unemployment for the FIRST time last month. Doesn't this indicate that 230,000 people lost jobs and that would cause the unemployment rate to go up ?"

    Even when the net number of jobs remains the same, some people start jobs and some stop, every month. The number they're calling "jobs created" is on net; 120,000 (or 115,000 per Morgan) more people were hired than lost jobs.

    Could it be phrased more precisely? Yes, of course. But if you do that too much, you begin to sound less like a press conference they hope voters see or hear, and more like the shows C-Span broadcasts to help insomniacs sleep at 2 am.

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