Seeking Alpha
Macro, portfolio strategy, fixed income
Profile| Send Message|
( followers)  

A month ago, I downplayed the weakness in the March jobs report ("Jobs Report More Noise Than Signal"), suggesting that future revisions could easily wipe out the apparent weakness, which seemed suspect. That's exactly what happened with the April report. Thanks to sizable revisions to the past few months and a stronger-than-expected April gain, jobs growth is once again back to where it has been for the better part of the last few years. Jobs are growing at a moderate rate of about 2% per year, or roughly 190,000 per month. Nothing has changed: we're still in a disappointingly slow-growth recovery, but it is definitely a recovery and there is no sign of any emerging weakness.

(click to enlarge)

The above chart compares the level of private sector nonfarm employment as measured by two different methods: the widely-followed Establishment Survey and the lesser-known Household Survey. The latter is notoriously more volatile than the former, but the two tend to track each other over time and now is no exception. The private sector has added between 6.5 million and 6.8 million jobs since the post-recession low in employment according to these surveys. In the past two years, the establishment survey shows that private sector job gains have averaged 194,000 per month.

(click to enlarge)

The above chart shows the six-month annualized growth rate of private sector jobs, according to the establishment report. Here we see that the current growth rate is not very different at all from what it has been the past few years. It's also about the same as we saw in the last economic expansion phase in the mid-2000s. Nothing remarkable has happened, except that there are still several million fewer people working today than there were at the peak in 2008. It's a tepid recovery, but a recovery nonetheless.

(click to enlarge)

What stands out most about this recovery is the huge decline in the labor force participation rate (the proportion of the population that is either working or looking for work), shown above, which began in earnest in the latter half of 2009 and shows no sign yet of reversing. If the participation rate were back at 66%, where it was before the Great Recession hit, there would be at least 10 million more people in the labor force; instead, they have given up looking or decided to retire.

(click to enlarge)

The chart above is another way of looking at the dramatic shortfall in the growth of the labor force.

(click to enlarge)

The chart above compares the unemployment rate, which is now down to 7.5%, with the burden of government spending, measured as federal spending relative to nominal GDP. The correlation between the two is impressive, to say the least, especially since 2008. There are two things going on here: 1) lower unemployment means less spending on automatic stabilizers, and 2) a smaller burden of government frees up resources for the private sector, which is then more able to hire people.

On balance, the April jobs report maintains the status quo ante. There have been no major changes to the health of the economy, which likely continues to grow at a sub-par, 2%-3% rate.

Source: Jobs Growth Is Still Moderate