The monthly employment report released today by the BLS said 304,000 new jobs were created and the rate of unemployment went up to 4.0%. The U-6 discouraged person’s rate went up 0.7% from the cycle low of July, 2018. Once unemployment reverses a downtrend and goes up by 0.4% or more that is a sign of new recession. If one respects the U-6 rate then that confirms a recession has already started.
The payroll-based BLS report uses a Birth-Death model of hypothetical jobs that added 122,000 jobs. But this is hypothetical. (This assumes business are so disorganized and slow that they need a long time to report new employment to the government – this is not correct, as I have done payroll reports for my employees and this matter is supposed to be done quickly and accurately or else severe penalties occur, so I don’t believe the Birth-Death model). If one subtracts this from the 304,000 new jobs and subtracts the downward revisions of 90,000 jobs the previous month then the employment grew by only 92,000. But to be fair one must also adjust for population growth of 100,000 new people a month, in which case the net jobs increases was negative 8,000, instead of positive 304,000.
75% of the new jobs were low paying service industry jobs. The problem with measuring employment is that it merely counts a person checking a box “do you have a job?” instead of a qualitative analysis asking is it a ”real” job with decent pay, no contingent pay, and steady hours?
Employment for prime age workers in the Household survey fell by 46,000. In the private sector jobs were reduced by 130,000 in the Household survey, which is a non-confirmation of the payroll survey. (The BLS does both a payroll and a Household survey).
The Labor Force Participation rate is trapped at 63%, down 4% from the high of 2000, or down 3.5% based on the average of the 1995-2007 era before the big GFC crash. This implies 3.5% of the population are the hidden discouraged unemployed; thus the true rate of unemployment is 7.5% instead of the official 4.0% rate.
With low wage EM countries continuing to attract employers fleeing Developed countries to take advantage of a 90% drop in costs then employment will continue to be weak in the US for blue-collar work and even some professional work. More reports are coming in about doctors, dentists, software workers, etc. doing work in EM countries that used to only be done locally in Developed countries. Thus fears of a scenario of full employment leading to inflation are lacking credibility. Instead, investors should worry that rising unemployment will deprive companies of sales growth and trigger a socialist victory in elections resulting in higher taxes (leading to more unemployment).
Investors need independent financial advice about the risks of misunderstanding employment and inflation.
For more information on hidden unemployment see this article.