More Jobs, More Unemployment?

I would be remiss if I ignored today’s employment report. It was generally good news. The economy added 244,000 jobs in April, with a gain of 268,000 in the private sector being offset by a decline in the public sector as state and local governments reduce their workforces in an attempt to balance their budgets.

Curiously, despite this increase in jobs, the unemployment rate increased from 8.8% to 9.0%, thus creating quite a conundrum we need to explain.

We should recall that the two numbers, the unemployment rate and total jobs added, are derived from two very different sources. There is no relationship between the two other than coincidence. Naturally over longer periods of time we would expect the two to follow the same trends, but there will be months when they move in contradictory directions. The apparent difference this month is made worse by by the same problem over the last few months. The unemployment rate dropped sharply according to its source – the monthly survey of households – even though the total number of jobs – as derived from its source, the establishment survey – didn’t show the same sudden improvement. So it was inevitable that we would reach a month when this split in trends was compensated for. That seems to be what happened in April: the jobs created rose much more rapidly, while the unemployment rate backed up to a level more in keeping with the recent jobs trend. So the oddity of the apparent contradiction is solved when we accept that this was simply the two trends getting into harmony.

With that out of the way, what do we make of the numbers?

Obviously the job gain is good news. That it was spread across the economy is also good. Service industries provided the bulk of the new jobs: the biggest increases came from retailing which added 57,000; consulting and other professional services which added 51,000; hospitality which added 46,000; and health care which added 37,000. Meanwhile manufacturing added 29,000 jobs, bringing its gain since the low point to approximately 250,000, of which 141,000 have been added in 2011 alone.

So the labor market is improving. Of that there can be no doubt.

The issue is how quickly and whether the improvement is sufficient to break the back of unemployment within an acceptable timeframe.

I think the response is that even this gain in jobs is not enough. Recall that during the peak Clinton years we were adding at this rate routinely. Plus with about 125,000 new workers entering the workforce each month detracts from the nature of the gain. The main point to keep in mind is that at this rate of improvement we will still have unusually high unemployment levels at the end of 2012. There has been no massive bounce back in the manner of past recoveries, and there is no real evidence of such a bounce back arising any time soon.

Couple this more sober reflection with the news, also released today, that wages rose only 0.1% in April, bringing their increase over the last year to 1.9%, and we can easily understand why overall growth is still mediocre. Demand will remain relatively dampened while both unemployment and wages languish in the doldrums.

So, while we should applaud today’s numbers – they were much better than I expected – we should not take our eye off the need for more effort to get people back to work and to make work more remunerative.