(MCD) Ugly U.S. Jobs Report in Depth Part 2

This month’s employment report was just plain ugly. There were, on balance, NO new jobs created in August, according to the establishment survey. Also, the job creation totals for July were cut to 85,000 from 117,000, and for June to just 20,000 from last month’s estimate of 46,000. We were also far below the consensus expectation of 75,000 jobs being created.

The household survey was stronger, but not exactly great either. The unemployment rate was unchanged at 9.1%, and down from 9.6% a year ago. For the month, the household survey was actually stronger than that indicates, since both the participation rate rose, from 63.9% to 64.0% as did the employment rate, to 58.2% from 58.1%. But both the civilian participation rate and the percentage of the population that is employed were coming off levels not seen since 1983!

The year-over-year drop in the unemployment rate is an illusion, as a year ago the participation rate was 64.7% and the employment rate was 58.5%. The median duration of unemployment rose to 21.8 weeks from 21.2 weeks. For perspective, the highest it ever hit prior to the Great Recession was 12.3 weeks. The average duration, however, ticked down to 40.3% from  40.4 weeks, but July was an all-time record. The uptick in the participation and employment rates were the only real silver linings in a very dark cloud.

Demographics of Joblessness

This recession has hit men harder than it has hit women. However, over the past year, things seem to be “evening out” between the genders, and this month that evening out continued. In August, the unemployment rate for adult men (over 20) fell to 8.9% from 9.0% in July, and down from 9.9% as recently as November. It is down from 9.6% a year ago.

The year over year decline is an illusion though as the participation rate for men fell from 74.3% a year ago to 73.3% in August, but rose from 73.2% in July. Thus the monthly drop in the unemployment rate for men was actually bigger than it appears. (For a fuller discussion of the importance of the participation and employment rates see Jobs Report in Depth, pt. 1.) The employment rate for men rose to 66.8% from 66.7% in July, but down from 67.0% a year ago.

For women, the unemployment rate rose from 7.9% in July to 8.0% in August, and unchanged from a year ago. The participation rate was 59.7%, up from 59.6% July, but down from 60.2% last year. The employment rate was unchanged at 54.9% for the months, but is below the 55.4% rate a year ago. Even though the unemployment rate is the same as last year for women the true jobs picture is worse than it was 12 months ago.

In the overall big picture, men have fared far worse than women in this downturn. There are two possible reasons for that. The first is that the industries that have been particularly hard-hit in this downturn tend to be far more male-dominated than the industries that have skated though this recession more or less unscathed. The most glaring example of this would be the construction industry versus the health care industry (more on the industry breakdowns below).

The second explanation is that, on average, women tend to still be paid far less than men do, and employers might be more prone to let their relatively high priced male employees go first before their cheaper female employees. The industry effect is probably the bigger one, but the two are not mutually exclusive, and both might be playing a role.

Teenage Workforce

Teens, regardless of gender have had a very hard time of it in this recession. Just go to a McDonald’s (MCD) and you will see this for yourself. Normally the blemishes you see on the cashier’s face is acne, not wrinkles and age spots like now.

Things got a little bit worse for teens in August. The teen unemployment rate rose to 25.4% from 25.0% in June, but is down from 26.2% a year ago. The month-to-month increase is, however, not as bad as it looks. The participation rate rose to 34.5% from 33.7% in July, but is well below the 35.2% rate a year ago.

The percentage of teens that actually have a job rose to 25.7% from 25.3% in July, but is down from 26.0% a year ago. In other words, don’t be too hard on your kid if he tells you he can’t find a job. He probably isn’t lying or just not trying.

While for the most part the earnings from teen jobs tend to go towards clothes from Abercrombie & Fitch (ANF) and other teen clothing stores, for many it is a significant part of paying for college. Also, when teens work, they learn important job skills, such as the importance of actually showing up, and doing so on time.

The extremely low levels of teens working is not a good sign for the future. In the Great Depression, we had the Civilian Conservation Corps (CCC) that put unemployed kids and young adults back to work. Perhaps it would be a good idea to do so in the current climate. That, however, would entail the federal government actually spending some money to help fix the problem.

Results by Race

Not surprisingly, Whites have a lower unemployment rates that do Blacks or Hispanics. The White unemployment rate fell to 8.0% from 8.1% in July. It is down from 8.7% a year ago. The participation rate was unchanged at 64.5% for the month, but down from 65.2% a year ago. The employment rate for whites was also unchanged on the month, at 59.3% but is down from the year-ago level of 59.5%.

Thus it is a fair conclusion that the jobs picture for Whites improved slightly in the month, but the year-over-year improvement is an illusion. It is largely due to the fall in the participation rate, not a real improvement in the employment picture.

The unemployment rate for Blacks jumped to 16.7% from 15.9% last month, and it is above the 16.2% a year-ago level. The true picture, though, is murkier than that. For the month, the participation rate for Blacks rose to 61.5% from 60.4% last month but down from 62.2% a year ago, so the monthly deterioration was not as bad as it looks, but the year-over-year situation is actually worse than the unemployment number alone (as awful as it is) would indicate.

The employment situation for Blacks over the last year has not changed significantly. The employment rate for Blacks rose to 51.2% from 50.8% in July, and is up slightly from 52.1% a year ago. The unemployment rate is 108.8% higher than that for Whites, and the employment rate is 13.7% lower (51.2% vs. 59.3%). The participation rate is just 4.7% lower. A year ago the participation rate was 4.6% lower and the employment rate was 12.4% lower. A year ago, the unemployment rate for Blacks was 86.2% higher than the White unemployment rate.

The unemployment rate for African American teens looks more like the unemployment rates you associate with Africa. It jumped to 46.5% from 39.2% in July, and up from 45.7% a year ago. Some of that is due to a rise in the participation rate this month to 24.2% from 22.9% in July, but it is still down from 25.7% a year ago. In August, just 13.0% of Black teens had a job, down from 13.9% in July and 14.0% a year ago.

For Hispanics, the unemployment rate was unchanged for the month at 11.3% and down from 12.1% last year. The true picture is much more downbeat than that. The participation rate rose to 66.3% from 66.0% last month but down from 67.2% a year ago. The employment rate rose to 58.8% from 58.5% last month. A year ago the Hispanic employment rate was 59.1%.

Thus, the improvement in the job picture from last year one would see if you only looked at the unemployment rate, is a mirage. On the other hand, there was actually a month-to-month improvement, rather than no change.

The participation rate by Hispanics is actually 2.8% higher than for Whites, but a year ago it was 3.1% higher than for Whites. The employment rate is 0.8% lower, while a year ago it was 0.7% lower than for Whites. Over the last year the unemployment rate has moved from being 39.1% higher than the White unemployment rate to 41.3% today.

Stay in School

The unemployment rate for high school dropouts fell to 14.3% from 15.0% in July. It is up from the year ago level of 14.2%. The drop for the month is only partly an illusion. The participation rate amongst the drop outs fell to 46.7% from 46.9% last month and is up from the 46.4% level of a year ago. The percentage of high school drop outs actually employed rose to 40.0% from 39.9% last month and from 39.8% a year ago.

I should note here that the numbers by level of education refer to people over age 24, and so are not directly comparable to some of the other numbers. The overall unemployment rate for people over 25 and older was 7.8%, unchanged for the month and down from 8.3% a year ago.

Just finishing high school or getting your GED substantially increases your odds of having a job. The unemployment rate for high school grads (with no college) rose to 9.6% from 9.3%.in July. It is down from the 10.2% rate a year ago. In all three months, the level was still far below that for drop outs. This month the unemployment rate for dropouts was 49.0% higher than for those who at least finished high school.

The reality, though, was that the deterioration in the job situation for high school grads was much worse than it looks. The participation rate for high school grads fell to 60.0% from 60.6% in July. A year ago it was 61.9%. Thus, the improvement from last year is an illusion, but the monthly rise was much worse.

The employment rate for high school grads fell to 54.3% from 54.9% in July, and is down from 55.5% a year ago. Note that the participation rate and the employment rate are much higher for high school grads than for dropouts. The payoff from graduating is thus actually much higher than the unemployment rate differential (as big as it is) would indicate.

Those who went to college but did not finish or only got an Associates Degree had an unemployment rate of 8.2%, down from 8.3% in July and down from 8.3% a year ago. The participation rate for Associate Degree holders rose to 69.2% from 68.9% but is down from 70.5% a year ago. The employment rate rose to 63.5% from 63.2% on the month but is down from the 64.4% level of a year ago.

There is still a sizable payoff in terms of employment prospects from going to Community College, although the difference is not quite as dramatic as the payoff from simply graduating from high school. The high school grad unemployment rate is 17.0% higher than that of the Junior College set. The employment rate is 16.9% higher.

For those who stay in school to get their BA (or higher) the unemployment rate was unchanged at 4.3% for the month, and is down from 4.6% a year ago. However, the participation rate fell to 76.0% from 76.1% in June, but is up from 75.8% a year ago. The percentage of college grads with jobs was fell to 72.7% from 72.9% last month but up from 72.3% a year ago.

The graph shows the long-term history of unemployment by level of education. While the level of unemployment is always higher the less education one has, the relatively uneducated really get hit hard when the economy turns south.

The unemployment rate for people 20-24, those who are just entering the full time workforce was 14.8% up from 14.6% in July, but down from 14.9% a year ago. This increase is bad news. If these people cannot get jobs, they tend to remain living with Mom and Dad. This slows the rate of household formation, and hence the demand for housing. That makes it difficult for the economy to absorb the huge housing inventory overhang, not to mention for Mom and Dad’s sanity.

Normally housing is the locomotive that pulls the economy out of recessions. That locomotive is still derailed, and it is the principal reason that this recovery has been so sluggish. The unemployment rate for those a bit older — the 25 to 34 year old cohort, which is the prime age for first time home ownership — fell to 9.5% from 9.7% last month and down from 9.8% a year ago.

Lowering the unemployment rate amongst these people will be a key to resolving the housing problem. We are making progress, but still have a long way to go. Several studies have shown that not being able to get a job right after finishing school hurts people not only short term, but the effects lasts their entire working career.

Where the Jobs Are and Are Not

The private sector actually added more than the total number of jobs again this month. State and local governments laid off 15,000 workers, and have trimmed their payrolls by 345,000 over the last year. Local government employment was down by 20,000 on the month, and is down by 292,000 from a year ago.

The number of state employees was up 5,000 on the month and is down by 53,000 over the last year. The return of state workers in Minnesota who were furloughed last month over a budget impasse (now resolved) was probably a significant factor the increase this month.

The federal government dropped 2,000 employees on the month, and has dropped 105,000 employees over the last year, but most of those were temporary Census workers.

In looking at the effectiveness of the stimulus program from the Federal government, one should keep in mind the massive anti-stimulus effect of budget cuts and tax increases (mostly budget cuts) at the state and local levels of government.

Austerity and the Poor Jobs Numbers

For the overall economy, it does not matter from which level of government stimulus or austerity comes from. The level of government spending occurs at matters for a bunch of other reasons, but not for macro economic impact. About a third of the ARRA was actually sent to State and Local governments to prevent (or delay, as it has turned out) austerity at the lower levels of government from hurting the economy.

Clearly the spending cuts are job killers. The effect goes well beyond the direct 345,000 jobs lost at the state and local government levels over the last year. Those former government workers are now out of jobs and thus spending less, depressing private sector employment as well.

With the spending cuts agreed to as part of the debt ceiling deal, look for even more job cuts at all three levels of government. The number of job losses last month at the local level was revised sharply higher, to a reduction of 49,000 jobs rather than the drop of 16,000 originally reported.

Within local government, education jobs were down by 13.700 for the month and are down by 194,000 over the last year, or 2.42%. Given the huge disparity in the unemployment rate between the uneducated and the highly educated that I discussed above, one has to seriously question the wisdom of laying off so many K-12 teachers.

Seriously, people worry about the burden that we are putting on our children due to the increase in the federal debt. Just how do we expect them to bear that burden if most of them are illiterate and innumerate? How are we going to compete in the future against countries that actually think it is a good thing to educate their future workforce?

There has been a theme running in the political discourse that we must cut government spending so we can increase employment. This is simply absurd. In what world do you increase employment by cutting jobs? Non-education jobs at the local level — mostly cops, firefighters and social workers — dropped by 6,300 on the month and are down by 98,200, or 1.55% over the last year.

Private Sector Helping…Just Barely

The private sector added 17,000 jobs, way down from an increase of 156,000 jobs in July (revised up from 154,000). That would be an awful rate if we were near full employment, but when we are trying to climb out of such a deep hole, it is simply horrendous. In June, the private sector added 75,000 jobs (revised down from 80,000, but up from an initial read of 57,000).

The private sector job growth over the last three months is anemic, averaging 82,600. If the economy were near the top of an economic cycle, that would be soft, but not a disaster, but it is awful coming out of a deep recession. The August number was far above the consensus expectations of 75,000 private jobs gained.

This is the 21st straight month that the private sector has added jobs, with a total increase of 1.703 million over the last year. In a normal year, that would be a great showing, but we lost 8.75 million jobs in the Great Recession, so we still have our work cut out for us.

The total number of jobs is still 6.806 million below the peak of the last cycle (1/08), but is up 1.944 million above the cycle low (2/10). Private employment is 6.440 million below the peak, but 2.398 million off the low.

Goods Producing Jobs

Within the private sector, the goods producing sector lost 3,000 jobs 42,000 jobs. In July it gained 52,000 (revised up from 42,000). In June, the goods producing sector added 16,000 jobs (unrevised).  Over the last year employment in the goods producing sector is up 294,000.

The construction industry lost 5,000 jobs, after gaining 7,000 last month. The construction industry has been particularly hard hit in this downturn, accounting for about 30% of all the jobs lost, even though at the start of the recession it accounted for less than 6% of the total jobs in the country. As these jobs generally do not require a lot of formal education, the demolition of construction helps explain why the unemployment situation is so dire for those who never went to college.

As a male dominated industry, it also helps explain why this recession has been so much tougher on men than it has been on women. Employment in Construction peaked before the rest of the economy, in April 2006. Since then we have lost 2.202 million construction jobs. Most of the decline, though, happened after the overall private sector jobs peaked in January 2008, and since then Construction jobs are down by 1.948 million, or 26.1%.

Since the peak, overall private sector employment is down by 6.440 million. In other words, this one industry is directly responsible for 30.2% of all job losses since the start of 2008, even though it was responsible for just 6.46% of all private sector jobs in January 2008.

Manufacturing lost 3,000 jobs, a big slowdown from the gain of 36,000 in July (revised up from a gain of 24,000). In June, 14,000 manufacturing jobs were added (revised from a gain of 7,000). Manufacturing employment has been in a secular decline for about 30 years, but it has actually fared pretty well over the last year or so.

The peak in manufacturing jobs was way back in July of 1979 at 19.531 million. By the time the Great Recession started in January 2008, the number of manufacturing jobs was already down to 13.728 million. The low in manufacturing jobs was in December 2009 at 11.456 million, and since then we have gained back 301,000 of those jobs. Still, relative to the start of the Great Recession manufacturing jobs are down by 1.971 million, or 14.4%, representing 30.6% of all private sector job losses from the peak.

Services Sector

The service sector gained only 20,000 jobs in the month, way down from an increase of 104,000 in July (revised down from a gain of 112,000) and from a gain of 59,000 in June (revised from 64,000). Relative to a year ago, private service sector jobs are up by 1.415 million. Relative to the start of the Great Recession they are off by 2.578 million.

From their 12/09 low, private service jobs are up by 2.016 million, so they are almost halfway back. One of the biggest contributors to service sector jobs, as always, was the health care (and social assistance) industry which added 35,500 jobs.

The health care industry has not had a single down month in terms of employment in the entire downturn. The health care industry has a far higher proportion of women working in it than does the economy as a whole, and this is a big part of the reason that the unemployment rate for women is so much lower than that for men.

Temp Jobs

Of particular interest is the increase in temporary workers. Those jobs rose by 4,700, up from a gain of 1,200 (revised up from a gain of 300) in July, but that is after they fell by 7,000 in June (revised from being down 11,600).

It is not that being a temp is the greatest or highest paying job in the world that makes them of particular interest. It is because they are a good leading indicator of future employment trends.  When during a downturn an employer first sees a pick-up in demand, he will not know if it is just a temporary blip, or the start of a real recovery. Thus he is going to be hesitant to take the time and expense of bringing on new workers who will just have to be laid off it if does turn out to be just a blip.

The first thing an employer is going to do is work the existing workforce harder. This is particularly if hours have been previously cut back due to slow demand. The dip in the average work week is not a very good sign in that regard. Working more hours means more income, and thus more spending by hourly employees.

The second thing an employer will do when faced with an increase in demand is going to be to call a temp agency. Only when the employer is reasonably sure that the upturn is for real and will last will he figure that it is worth bringing on a full time permanent employee. However, temp jobs have been trending higher since August 2009, and one would think that we would be starting to see those translating into permanent jobs at a faster rate at this point.

That disconnect could be pointing to some sort of structural shift in the employment market, but it is too early to say. Since 8/09 the number of temps is up by 493,300 or 27.8%, but is still 12.4% below the level at the start of the Great Recession. The rise in the number of temps was not large, but is a little bit of hope for the future.

“Underemployment” Rate

The number of people working part time for economic reasons — in other words, because that is all they could find, or because their previously full time job has had its hours cut back — jumped to 8.826 million, up 430,000 from July but down 57,000 from a year ago.

The “underemployment rate” rose to 16.2% from 16.1% this month. (U-6, for you wonks out there). It is still down from 16.7% a year-ago level. That is still a very high rate. After all, if you are used to working 40 hours a week, but have been cut back to just 20 hours a week, you might not be unemployed, but economically you are still struggling.

The number of people who were working part time because that is what they want to do fell by 50,000 for the month, and is down 358,000 from a year ago.

Overall Grade: D-

Overall, this was an awful report. The only thing saving it from an F was the increase in the participation and employment rates in the household survey. It was way worse than expected, and the worst overall job creation in almost two years.

However, the internals of the report were not quite as awful as the headline job creation, or lack thereof, suggests. The redeeming numbers all come from the separate household survey, and that is generally considered to be less accurate than the establishment survey.

Year over year, the drop in the unemployment rate from 9.6% to 9.1% looks like progress, but it is an illusion. It is all due to a fall in the participation rate. While it did tick up this month, last month was the lowest level since 1983. Anyone who gets excited about the drop in the unemployment rate that comes due to a falling participation rate is deceiving themselves.

The rising participation rate this month is a good sign for the economy, but being one tick off of a 28-year low is not something to get very enthusiastic about. Similarly, the percentage of people actually working ticked up, but off of the worst showing since 1983.

The drop in government jobs was actually smaller than the consensus expected, but the downward revisions to July were big. Add those to the drop this month and things were worse than expected.  The household survey was much more upbeat, and pointed to a gain of 331,000 jobs for the month.

However, the year-over-year showing in the household survey is much weaker than in the establishment survey, showing the addition of just 360,000 jobs. All things considered, it is better to see the job creation in the private sector, but those public sector jobs are held by real people. Wal-Mart (WMT) does not ask if you are in the public or private sector at the checkout counter. The loss of those local government jobs has been a serious drag on job creation and thus the overall economy.

The damage done by this downturn was far deeper and more extensive than in those downturns. The next graph below (also from http://www.calculatedriskblog.com/) shows just how deep and nasty this downturn was relative to all the post-war recessions that came before it. By this long after the previous peak in employment, in every case but one (2001) the economy had fully recovered and had more total jobs than when the recession started.

While clearly we have started the upturn, with or without census hiring, it is going to take a very long, long time before we surpass the total number of jobs the economy (both private and government) had back in January of 2008 (137.996 million). We are still 6.953 million lower than that level. Obviously at the August pace of zero net jobs created, we would never get back there.

At the average pace of the last three months, it would take 199 more months, or over 16 years to get back there. Even if we can get back to the pace we have averaged over the last year, we are still talking about five and a half more years before we hit a new peak in employment, and the population will continue to grow over that time frame.

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