Professor Paul Krugman is not happy about the employment situation and I have to agree with him that it is very bad indeed. We have a big problem when it comes to creating new jobs and getting millions of Americans back to work. Here is Krugman in a post from his blog [emphasis added]:
The Jobs Deficit (The New York Times, Dec. 10, 2009, Paul Krugman)
It was truly amazing the way last week's employment report was hailed by many people as a sign that our troubles are over. Here we are, having suffered huge job losses, and needing to make up the lost ground "” and a report showing that we're still losing jobs, but not as fast, is grounds for celebration?
Actually though, despite Krugman’s gloom, there were a couple of positives in that we did lose fewer jobs than we had been losing. But, in the big picture, Krugman is correct. The jobs deficit is huge. This chart from the Wall Street Journal makes the point visually:
Source: Wall Street Journal
This chart projects our current employment - unemployment situation into the future based on job growth rates from the previous economic recovery. The red zone in the chart indicates millions of people remaining unemployed for years. Only when the red zone disappears would we be back to the level of employment we had back in 2007.
Had he seen my post, Jobs Summit: They just don’t get it, or this post, Employment Report: Good, bad & ugly news, that certainly would have helped Professor Krugman illustrate the point he is making, but we cannot expect him to read everything. He continues:
…To keep up with population growth over those 7 years, the United States would have had to add 84 times 127,000 or 10.668 million jobs…Add in the need to make up lost ground, and we're at around 18 million jobs over the next five years "” or 300,000 a month.
…Anything less than that, and it's bad news. It sort of puts that wonderful report that we only lost 11,000 jobs in perspective, doesn't it?
Krugman is correct. The modest number of job losses was touted by the administration as a good sign, but it was not really significant. However, there really was some very good news that was hidden at the end of the release though and here it is:
The change in total nonfarm payroll employment for September was revised from -219,000 to -139,000, and the change for October was revised from -190,000 to -111,000.
For September and October, the BLS overestimated job losses. In this report, the job loss estimates were revised upward by a total of 80,000 for September and 79,000 for October for a total of 159,000 jobs. This is very good news if it holds up.
The not so good
Though the unemployment rate went down, the reduction was essentially a statistical change rather than a real improvement. It seems that roughly 98,000 people stopped looking for work and that "” paradoxically "” is why the unemployment rate went down. If you are unemployed, but not out looking for work, you are not counted as unemployed.
The ugly
Here is where things got ugly. The BLS report continued:
The number of long-term unemployed (those jobless for 27 weeks and over) rose by 293,000 to 5.9 million. The percentage of unemployed persons jobless for 27 weeks or more increased by 2.7 percentage points to 38.3 percent.
Those who saw positives in the report were correct as I pointed out. But, there was some seriously bad news that few reports covered, which is that there are 5.9 million people who have been unemployed for 27 weeks or more. And, that number went up by 293,000 people in November.
Unfortunately, most of the solutions we are hearing about from the government will hurt employment prospects as much as they help them. I covered that point in the Jobs Summit post above. So, we have to be ready for high levels of unemployment for a long time to come.
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What is more significant is the cost of two wars and the drain on our economy because of nation building during the last ten years.
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Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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