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Introduction

One of the favorite financial media activities is to report on every shred of employment data - unemployment claims, unemployment rate changes, employment changes, etc. Then pundits guess what it means. This is nonsense. The pundits are trying to analyze "noise." So where is the U.S. recovery? What do you really have to know? In what follows, I address this question by the use of some simple data aggregates.

The Overall Picture

Times were good in 2007. At the end of the year, the U.S. private sector employed 115.6 million people. At the depth of the recession (February 2010), 8.8 million jobs had been lost. By the end of March, 2012, the private sector had added back 4.1 million jobs. That means private sector employment is still 4.8 million lower than in 2007. More than 50% of the jobs lost have not come back.

At the end of 2007, government employment was 22.4 million. It was 22.5 million in February 2010. It fell to 22.1 million in March 2012, primarily because local governments continue to lay off workers. But overall, government employment has been stable since 2007.

Key Details on Private Sector Employment

Table 1 indicates how much employment has recovered relative to the end of 2007. While Health and Education employment are apparently recession-proof, Construction and Manufacturing were both hit very hard and have been slow to recover. In fact, employment in the Building Construction sector has fallen since February 2010, the month in which overall private sector employment bottomed out. Most of this is attributable to problems in the real estate sector where a massive inventory of unsold homes still exists (U.S. consumer debt is down, in large part because Americans are abandoning homes where mortgages exceed current values).

Table 1. - Private Employment by Sector (seasonally adjusted)

End 2007

% Change

% Change

Sector

(in thous.)

to 2/1/2010

to 3/1/2012

Total Private

115,606

-7.6%

-4.1%

Construction

7,490

-26.2%

-25.9%

Bldg. Const.

1,730

-28.6%

-29.0%

Manufacturing

13,743

-16.6%

-13.2%

Wholesale Trade

6,038

-9.9%

-7.4%

Financial

8,224

-6.9%

-6.1%

Retail Trade

15,571

-7.6%

-5.6%

Transport, Warehousing

4,548

-8.9%

-4.2%

Arts, Entertainment

1,993

-5.1%

-3.3%

Other Private

39,509

-4.9%

-0.2%

Health

13,103

4.5%

9.0%

Education

2,976

4.5%

11.0%

Source: Bureau of Labor Statistics

Key Details on Government Employment

Table 2 provides key details on government employment. Local government employment dwarfs that of Federal and state governments. And what is troubling here is that in response to falling revenues (lower property tax collections due to lower property values), local government employment continues to fall. An interesting manifestation of this being that Detroit is effectively bankrupt.

Table 2. - Government Employment by Level (seasonally adjusted)

End 2007

% Change

% Change

Government

(in thous.)

to 2/1/2010

to 3/1/2012

Federal

2,756

4.2%

2.5%

State

5,139

0.1%

-1.4%

Local

14,481

-0.2%

-2.6%

Source: Bureau of Labor Statistics

Looking Ahead

Ok. What does it all mean? Forget about government employment. Private sector employment growth is all that matters. So what do we see? Table 3 provides monthly private sector employment growth for the last three years.

Table 3. - U.S. Private Sector Employment Growth

(seasonally adjusted in thous.)

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2010

-40

-27

141

193

84

92

92

128

115

196

134

140

2011

119

257

261

264

108

102

175

52

216

139

178

234

2012

277

233

121

Source: Bureau of Labor Statistics

That growth looks very healthy to me. Many look at the first three months and say not as many jobs added as in the first three months of 2011. Well, not quite. So what? Don't trust the monthly numbers. Look back to the beginning of 2011. Since then, 2.7 million additional jobs.

Also, this is an election year. Politicians have stopped talking about the need for austerity - that will have to wait until after the election. And at some point, the real estate cycle will gain upward momentum.

Investment Implications

While I believe the U.S. recovery is underway and will not be derailed by what happens in the eurozone (won't be good), the markets will continue to be choppy and the dollar will eventually weaken. So I will hold on to my two emerging market debt investments - Wisdom Tree Emerging Markets Local Debt ETF (ELD) and the TCW Emerging Markets Income Fund.

In anticipation of the U.S. real estate recovery, I will also continue to hold on to the Fidelity Real Estate Income Fund. For the same reason, I also recently purchased some Brookfield Asset Management (BAM), a company that also has income earning investments in energy and infrastructure.

Source: The U.S. Employment Problem: All You Need To Know