May Unemployment Report: Bad on the Surface, Better Underneath!
This post examines the Department of Labor June employment and unemployment report, which looks at developments for the month of May. For a forecast of the July Employment and Unemployment report, which covers the month of June, see July Employment Report: Reasons for Optimism and Concern.
Everyone is very concerned over the June Jobs Report which revealed that the unemployment rate increased from 8.1% to 8.2% and only 69,000 jobs were created. Contrary to the crowd, I like this report better than last month’s report when the unemployment rate decreased from 8.2% to 8.1%. Why?
It is always better to have the unemployment rate increasing and more people coming into the labor market, than to have the rate decreasing because people are leaving the market! Last month, the civilian labor force increased by 642,000 people. The previous month, it declined by 342,000.
While this report is bad on the surface but better underneath, last month’s report was good on the surface, but bad underneath
What’s bad on the surface?
1. The unemployment rate increased from 8.1% to 8.2%
–White unemployment remained constant at 7.4%
–Black unemployment increased from 13.0% to 13.6%
–Latino unemployment increased from 10.3% to 11%
2. Only 69,000 total jobs were created
3. The government subtracted 13,000 jobs
4. The construction industry loss 28,000 jobs
What’s better beneath the Surface?
1. The civilian labor force increased by 642,000 people, this is good!
2. Had labor force and remain the same, the unemployment rate would have decreased
3. 422,000 more people were employed during the month
4. The number of discouraged workers decreased
So overall, what is happening in the economy?
The economic recovery is occurring in a cyclical pattern, rather than a smooth upward trend (see the slide below)
The cyclical pattern is because different sectors are not growing together at one time but separately. (i.e., housing, business investment, consumer spending etc.)
The abnormally low interest rates are not compensating people for taking the normal investment risks; therefore they are putting their money into safe havens, i.e. gold, yen, dollars. As odd as it seems, thebegin gradually increasing the interest rate.