Don’t believe every headline (except this one)
The recent data out of the US Bureau of Labour Statistics looks amazing at first glance. Nonfarm Payroll data added 288,000 jobs and the Unemployment rate dropped to 6.3% from 6.7%. But don’t be fooled by the headlines.
To get a better picture of what is going on, we must delve a little deeper. The Household Survey asks 60,000 households if they are employed and if not, are they looking for a job. What it found was that 806,000 fewer people were in the labour force. The survey found the number of unemployed persons decreased by 733,000, which means the number of people employed actually dropped by 73,000.
The participation rate (the number of people working or looking for work) fell to 62.8%, its lowest level in 36 years, and just 58.9% of the working-age population holds a job. That's down from 62.9% before the recession. Clearly these are conflicting statistics, but they point to a less than robust job market. If the US economic recovery was in full swing, we wouldn’t be getting these mixed signals.
Further signs that the recovery is not as robust as some might hope can be found in the unemployed ‘new entrants’ and ‘re-entrants’ figures. The number of people seeking a job for the first time fell by 126,000 and the number of people returning to the workforce fell by 417,000. These figures point to an economy that is failing to attract people into the workforce.
So there is a lot more to the drop in unemployment than meets the eye. But what about the nonfarm report?
This month’s figure of 288,000 certainly looks robust and the previous two months reports have had their figures upgraded. February was revised from 197,000 to 222,000 and March was revised from 192,000 to 203,000 for an overall gain of 36,000 jobs across the two months.
But delve a little deeper and we see some slightly stagnant statistics. For example, the average work week for all employees on ‘private nonfarm payrolls’ being unchanged at 34.5 hours or the average wage being unchanged at $24.31 an hour.
On the whole, the nonfarm report does look impressive but the unemployment figures are quite deceptive and the headline rate is misleading. These mixed signals are a sign there could be underlying weakness in the US labour market and the economic recovery itself.