Unemployment: It's More Than a 'Soft Patch'

by: Econophile

The fear brought about by Friday's employment report is almost palpable. Reports express "surprise," "shock," and "disappointment" at the news that employers only added a net 18,000 jobs in June, the slowest pace in nine months, and that the unemployment rate increased to 9.2%, the highest level since December 2010.

This is not a surprise to Daily Capitalist readers as we have been beating the stagnation-inflation drum for quite a while now. Our conclusion is that this economic slowdown as measured by current data is not a "soft patch" but rather a systemic decline of economic activity due to fundamental weaknesses. We are surprised that others can't see what we see.

But first, the numbers - (click charts to enlarge).

The private sector added only 57,000 jobs after a 73,000 advance in May. Offsetting the private gains was a loss of 39,000 government jobs (along with the gnashing of economists' teeth). The April and May, 2011, report revisions were also negative, shaving off another 44,000 jobs from prior gains.

Here are the highlights from the BLS report: (pdf)

Within professional and business services, employment in professional and technical services increased in June (+24,000). This industry has added 245,000 jobs since a recent low in March 2010. Employment in temporary help services changed little over the month and has shown little movement on net so far this year.

Health care employment continued to trend up in June (+14,000), with the largest gain in ambulatory health care services. Over the prior 12 months, health care had added an average of 24,000 jobs per month.

In June, employment in mining rose by 8,000, with most of the gain occurring in support activities for mining. Employment in mining has increased by 128,000 since a recent low in October 2009.

Employment in leisure and hospitality edged up (+34,000) in June and has grown by 279,000 since a recent low in January 2010. ...

Manufacturing employment changed little in June. Following gains totaling 164,000 between November 2010 and April 2011, employment in this industry has been flat for the past 2 months. In June, job gains in fabricated metal products (+8,000) were partially offset by a loss in wood products (-5,000).

Construction employment was essentially unchanged in June. After having fallen sharply during the 2007-09 period, employment in construction has shown little movement on net since early 2010.

Wages and work week hours fell as well; especially disappointing was the manufacturing sector:

The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in June. The manufacturing workweek for all employees decreased by 0.3 hour to 40.3 hours over the month; factory overtime edged down by 0.1 hour to 3.1 hours.

In June, average hourly earnings for all employees on private nonfarm payrolls decreased by 1 cent to $22.99. Over the past 12 months, average hourly earnings have increased by 1.9 percent.

There are 14.1 million Americans who can't get a job. Part-time workers wanting full-time jobs was unchanged at 8.6 million. The number of discouraged worker was 982,000. Since March, an additional 545,000 unemployed workers have been added. The number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged over the month at 6.3 million, or 44.4 percent of the unemployed. I also noticed in the report that part-time employment has flattened out as well. This fits in with the National Federation of Independent Business's reports on employer negativity. If there was any hiring it would be part-timers.

Here is the U-6 chart, the broadest index of unemployment:

Warren Buffett says we have nothing to worry about. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.” It is interesting how Buffett has positioned himself as everyone's favorite uncle, always urging us to not worry. Despite his soothing palliative, I see negative indicators, and I worry.

The further flattening-to-declining employment trend is consistent with our belief that we are in a stagflationary economy, where growth will be flat-to-negative until the real estate excesses and its related debt and credit issues have been resolved.

It also tips the odds more in favor of another round of quantitative easing that we are projecting to occur well before the November, 2012, elections. As long as unemployment remains high and economic activity remains no better than flat there will be pressure on the Fed to meet its full employment mandate. QE is the only trick left in the bag. That will lead to further price inflation, a shot in the arm for the financial markets, but it will not lead to a boom in industrial activity and the estimated 250,000 new jobs a month that must be created over the next five years to create "full employment."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This article originally appeared in the Daily Capitalist.