We have seen a number of improvements in the outlook for jobs lately. The Bureau of Labor Statistics has reported job growth at companies for the past four months and it revised upwards estimates of new jobs from earlier months. All in all, companies are continuing to hire and that is good news. Other factors, such as layoffs are down and that is good.
On the other hand, the unemployment rate went up last month to 9.9% despite job growth. How can that be? Well, the BLS does not count as unemployed those who have not looked for work recently. Now that the jobs picture is improving a bit, more people are looking for work, hence they are counted as unemployed, thus raising the rate. This is not unusual at this stage of an economic recovery, but what is unusual is that total new hires and total job separations (layoffs, firing etc.) are nearly balanced. New hires would normally be well above separations at this point in the economic recovery. Also, there is a very slow rate of new job openings coming online.
This chart from one of my favorite blogs, Calculated Risk, gives us a comprehensive view of the total employment picture including layoffs, new hires and much more:
Source: Calculated Risk
Calculated Risk describes the chart this way [emphasis added]:
Notice that hires (blue) and separations (red) are pretty close each month. This is the level of turnover each month. Right now about 4 million people lose their jobs each month, and a little over 4 million are hired (this is the labor turnover in the economy).
When the hires (blue line) is above total separations (as in March), the economy is adding net jobs, when the blue line is below total separations, the economy is losing net jobs…
As you can see, jobs are being added and this should accelerate in the months ahead. Unfortunately, we are a long way from making a dent in the millions of jobs that have been lost in this recession. That will not happen until the blue line (above) goes well above the red line.
So, why is job growth slow? One big reason is lack of hiring in America’s small businesses.
Little enthusiasm among small businesses
When it comes to creating new jobs, small businesses are the engine of growth. Unfortunately, that engine is not revved up at all right now as indicated by this report from the chief economist of the National Federation of Independent Businesses (NFIB) [emphasis added]:
"The steep recession will unlikely be followed by a steep recovery, the numbers just aren't moving in that direction. Average employment per firm first turned negative in April of 2007. It has been negative for 10 of the last 12 quarterly readings ending with a negative 0.18 in April 2010 (seasonally adjusted). Since July 2008, employment per firm fell steadily each quarter, logging the largest reductions in the survey's 35-year history.
…The net percent of owners increasing employment in the last three months fell one point to a net negative 12 percent. April marks the 27th consecutive "?no new jobs' monthly reading.
"There is little enthusiasm among owners to hire more workers, primarily due to continued weak sales trends."
There is another growing problem that current trends in employment growth are not helping and that is the startline increase in those considered by the BLS to be long-term unemployed (27 weeks or more unemployed).
Long-term unemployment is soaring
Hidden within the unemployment statistics from the Bureau of Labor Statistics is a very troubling trend. The trend shows that the number of long-term unemployed workers is going higher and higher. By way of background, those who have been unemployed for 27 or more are considered long-term. Unfortunately, that number is soaring now as this chart from the Mercatus Center at George Mason University illustrates:
Source: Mercatus Center / George Mason University
The overall trend for unemployment will hopefully starting moving down, although it really has not budged much in the past few months. The issue presented in this chart (red line) is that the number of people who have been unemployed longest is moving up so rapidly.
In a short post accompanying the chart, Veronique de Rugy spelled out how dramatically this statistic has changed since 2008 [emphasis added]:
…According to seasonally adjusted data from the Bureau of Labor Statistics, last month, over 44.1% of unemployed workers (6.5 million workers) had been unemployed for 27 weeks or more; at the start of 2008, 18.3% of unemployed workers fell into this category. Importantly, these measures of unemployment exclude workers who want employment but were, for various reasons, not included in BLS's unemployment calculations "“ an estimated 5.8 million workers…
If those additional 5.8 million workers were added to this chart, it would look positively scary.
We have solid reasons for optimism in employment right now, but the picture is far from what we would want it to be at this stage of recovery.
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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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