Jobs: Beware the Optimists!

Well, at last we have jobs data that are reasonably pleasant to talk about. Today’s Bureau of Labor Statistics release of its monthly ‘Employment Situation’ report tells us that non-farm payrolls grew by 162,000 in March, the biggest jump in jobs for three years. Meanwhile, the unemployment rate held constant at 9.7%.

Taking a look at the trend lines is also revealing: the deep monthly reductions in payrolls are definitely a thing of the past, for several months during 2009 each month’s loss came in a little smaller than its predecessor, until at the end of last year and throughout 2010 so far we have seen either small gains or small losses. March broke that sideways movement with a reasonable shift upwards.

Good.

And: so what?

Here’s where I say be wary of the optimists.

While the report was a clear improvement, payroll growth is nowhere near sufficient to put a dent in unemployment. In vernacular terms we have moved from intensive care to a normal ward. But we are very long way from being cured.

The problem is that the job gains are concentrated in places like health care and the government, and are not widespread enough to suggest a healthy underlying trend. Nor are they anywhere large enough. Remember that we need to add between 125,000 to 150, 000 jobs a month just to stay even with our population growth. To break the back of unemployment we need to add jobs at a rate in excess of 300,000 a month. Preferably with a few months closer to 500,000. Those kinds of numbers still seem far off in the future.

Buried in the report are the disturbing tell tale signs of just how difficult this recovery will be.

Long term unemployment jumped by another 414,000 in March, bringing the total to about 6.5 million, and, even worse, bringing long term unemployment as a percentage of the total to a huge 44.1%. Not only are these figures historically high, they imply a devastation of household wealth and security that will take months, if not years, to heal. The gloomy overhang this casts over the economy at large is enormous and helps explain the constant uptick in personal bankruptcies, foreclosures, and other signs of economic loss.

On this latter point: today’s New York Times carries a good story on the phenomenon known as wage garnishment. Some of the individual stories are incredible and reveal the extent of the sickness within the economy. The theme throughout is the extraordinary disconnect between the banks and their customers. The fees and penalties that pile up legally in someone unable to pay their bills is testimony to the total severance between the two sides of the transaction. Banks simply don’t care. They bleat about their justification, and nothing they are doing is illegal. But when someone fails to pay a $4,500 debt and then, six years and $10,000 later still is being sued for $4,000 something is terribly wrong.

Everyone has responsibility for their debts, but the accumulation of late fees, penalty charges, and massive interest rates, is plainly beyond the pale of decency. Banks that act in that manner – and the examples in the NYT story are all from large well known banks – can never claim to be customer oriented. It is stupidity compounded by arrogance for the banks to cry that they are only acting within the rules. They wrote the rules. As the NYT points out it costs about $2,000 now to file for bankruptcy. The latest revision to the bankruptcy code was authored, literally, by the banking industry. The objective was to limit voluntary bankruptcies – cases where people were walking away from debts even though they could pay them. This created a different problem: people who obviously cannot pay, the very sort of folks that need bankruptcy as a tool to get their lives back in order, get ensnared in perpetual debt. they become a good source of bank income, and so there is no incentive for the bank to cut a deal. Hence the story above about a man who had $10,000 deducted from his wages over six years only to find he has reduced his original debt by about $500.

That was a digression from the unemployment report, but it adds a more human dimension to the rather dry recitation of statistics.

So, where do we stand?

Better than before, but not yet safe. The media and the financial world will love today’s news, but I would urge we all remain more cautious. There is a ton of work yet to do.

So. Beware the optimists.