What Jobs? Part 2

Well that does it. As of last night [Thursday] I was bemoaning the imminent announcement of another half million jobs. But this morning’s news release is much better than expected – ‘only’ 345,000 jobs were lost in May. That’s about half the monthly rate of the previous six months. Inevitably this apparent improvement will fuel a new round of debate about whether we have ‘turned the corner’.

Well have we?

Not yet.

First: the unemployment rate shot up to 9.4%. That’s higher than anyone had expected. The climb in the unemployment rate is even worse when we consider those workers who have stopped looking for work. Add them in and the rate is already in the mid-teens.

Second: the job loss figure looks very odd to me. Recall that earlier in the week ADP had announced a drop of about half a million in the payrolls it monitors. The only sector of the economy that ADP doesn’t cover is government. So if we assume that government employment changed by a reasonable amount – either up or down by 20,000 – then that should have given us a good guide to this morning’s total. The fact that the two numbers are wildly different suggests that we will se some revision when a revised number comes out.

That discrepancy, the jump in the rate of unemployed, the persistence of long term unemployed [i.e. those people who are collecting unemployment checks form state governments for more than one month] and the worrying number of ‘under’ employed combine to tell me that the job situation has not yet reached a point where we can properly talk of ‘turning the corner’.

That won’t stop the optimists from touting this morning’s news as a ‘sure sign’ of improvement. For instance: I would expect the stock market to climb on the news. I remain more cautious. I have a higher bar for performance. Months of job losses of several hundred thousand are not a sign of strength.

Still in view of where we have been, this morning’s data must give even someone like me pause for thought. If it’s backed up by two or three more successive improvements so that job losses have moderated to below 100,000 by late summer, then we can start to talk about recovery.

Meanwhile let’s stay skeptical.