Highlights and Lowlights From August's Jobs Report

Another monthly jobs report, another unqualified disappointment.

Just 96,000 jobs were created in August, according to Friday's monthly report by the Bureau of Labor Statistics. Monthly job-creation numbers have a margin of error of plus or minus 100,000, so a reported gain of 96,000 doesn't tell us much of anything. But the six-month average job-creation figure is now just 97,000 -- less than what is needed to simply keep up with population growth.

Source: Bureau of Labor Statistics; author's calculations.

No method of parsing the employment picture can evade the obvious: Millions are unemployed, and jobs growth is stagnant at best. Friday's report revised June's and July's initial numbers down by a combined 41,000 jobs. The economy needs to add 300,000 jobs a month from now until 2015 to bring unemployment below a healthy rate of 6%. We are nowhere near there yet.

The most complete measure of unemployment -- one that includes those who have given up looking for work and those working part-time involuntarily -- fell from 15% to 14.7% last month. That's one of the lowest levels in four years. A narrower but frequently cited version of the unemployment rate fell from 8.3% to 8.1%, a tie for the lowest level since early 2009.

Neither is much to celebrate. Both rates fell due to a decline in the denominator as people dropped out of the workforce -- and did they ever. There were nearly 400,000 fewer people counted in the workforce in August than July (though month-to-month changes in workforce are notoriously noisy).

A gaggle of analysts seized on the falling workforce figure as proof people were giving up and dropping out of the job market. No doubt this is happening. But we know there's more going on here than people simply giving up. How do we know? Because most of the decline in the labor force participation rate was predicted a decade ago, well before the recession began:

Sociologist Robert Szafran predicted a big drop in the labor force participation rate all the way back in 2002 based on demographics -- largely a factor of retiring baby boomers. Even with a booming economy, the participation rate will likely fall for years to come. We're getting older. It happens.

Some rebut that retiring old folks can't alone explain the falling participation rate, because so many of the dropouts are from the youngest cohorts. But there's an explanation for this, too. More young people aren't working because they're in school:

Source: Council of Economic Advisors, 2012.

Some of this will backfire, as many of those enrolled in college will never graduate, to say nothing of the burden of student loans. And the drop in the participation rate has been faster and sharper than demographics or education alone can explain; some people really are dropping out because the labor market is so weak. But as with so much else in the economy, there's more going on than initially meets the eye.

"That's not good enough," President Barack Obama said of Friday's employment report. "We know it's not good enough. We need to create more jobs, faster. We need to fill the hole left by this recession, faster."

Millions of out-of-work Americans could not agree more.

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.


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  • Report this Comment On September 10, 2012, at 11:42 AM, slpmn wrote:

    How about the public/private break out? One of the things you've done a good job of in the past is pointing out how the private sector has been churning out new jobs, but not at a fast enough pace to offset the shrinking of public sector jobs.

    I think it's worth mentioning, particularly in an election year when we hear so much from both sides about how they're going to "create new jobs". I'd like to know how they plan on doing that when they have no direct influence on private sector jobs, and both allegedly plan on cutting spending to trim the deficit, which will necessarily result in job cuts on the public side.

    Personally, I'm a little tired of the "I'm going to create new jobs" schtick. Not only do they not have the power to do it - since when is the primary role of the president (or government) to create new jobs?

  • Report this Comment On September 10, 2012, at 11:47 AM, TMFMorgan wrote:
  • Report this Comment On September 10, 2012, at 12:27 PM, slpmn wrote:

    ^Wow. Too bad my man Barack can't just say "Hey, if government employment grew as fast as it did during the last four years of the Bush adminstration, we'd be back at 6.5% unemployment already!" Well, I guess he could, but it doesn't quite grab you like "I'm going to create 12 million jobs if you elect me!"

  • Report this Comment On September 10, 2012, at 6:13 PM, jthorn5656 wrote:

    If you check out the June, July and August period for the last five years, you will notice that the August change is a mere reflection of seasonal adjustments. College and school students entered the labor market in June. Those who could not find work were seasonally adjusted out in August in anticipation of school starting in September. Mothers had to stay home during the summer to babysit their kids. In September, when the kids are back in school, ther will reenter the labor market.

    Employment is a reflection of the number of jobs filled. You could have two jobs and be counted in employment twice but only be one person. You could be in two different labor forces based on place of work. So what about all of the illegal immigrants being paid in cash. They are working making money but not counted as being employed. Labor economics has so many variables. Guess the only one I never have heard of is being over-employed. That would be quite a dilemna to have to face. So suppose you create 10,000 industrial engineer jobs but cannot fill them? Suppose that the jobs have been re-classified as environmental engineer jobs. We can vary the whole labor market out of existance. So how do you count the retired person who re-enters the labor market and takes another job. How is he or she counted? Let me know how you come out trying to eplain alll of these variables by applying an Analysis of Variance, Correlational Comparison and Scatter gram technology as well as shif share location quotient analysis. I haven't seen the results of any of those studies on the labor market. Jim Horn Retired Labor Economist and Personnel Administrator

    jthorn5656@atmc.net

  • Report this Comment On September 10, 2012, at 6:23 PM, jthorn5656 wrote:

    Oh, and one other thing. Education is becoming an artificial inducement to the labor force. If we force the 18 year old to stay in college until 22 or 24,

    The person who is 58 can reach 62 and receive minimum SS. The 62 year old could work until 66 to receive full retirement. Look back and see what MDTA, NAB-JOBS and VOCED once was. We might just need them to provide qualified workers to revamp the labor force with. Later, but I hope not much later. Jim Horn

  • Report this Comment On September 10, 2012, at 7:14 PM, NOTvuffett wrote:

    I don't care how you want to spin it, there needs to be 130k each month just to keep up with population growth.

  • Report this Comment On September 11, 2012, at 7:29 AM, OldVMer wrote:

    Does job growth need to keep up with population growth, or does it need to keep up with growth of population within the working age group? It baby boomers are retiring faster than youth and immigrants are entering the workforce, we could have population growth at the same time the working population is shrinking. I haven't found a good source for those numbers, but it seems a plausible scenario.

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