The Employment report was released today by the BLS. The unemployment rate dropped to a very low percentage of 3.6%, the lowest in 50 years. But factory jobs growth stalled this year. Manufacturing and mining produced the growth of GDP in 2017 and 2018 and now that has stalled. Factory jobs in April declined by 4,000. These good paying jobs are worth more in terms of stimulation and growth than a low wage, entry-level fast food job.
The Labor Force Participation Rate has been stuck near 63%, but in 2007 before the crash, it was 66%, which is 4.8% (as a percent of a percent) less than in 2007. If these missing workers reported to the government that they were unemployed and seeking work they would push the unemployment rate up by 3% to 6.6%. For employment to be so low at 3.6% there should be a bidding war by employers where real wage increases would be 3% or 5%, instead of less than 1%.
The Household report employment declined 107,000; the payroll survey uses Birth/Death model (which is hypothetical and adds hundreds of thousands to the estimated of employed people based on a theory that employers didn’t have time to report this to the government. This is ridiculous, as strict payroll tax rules mandate prompt reporting, thus this model shouldn’t be used). The Household report said employment declined 3 of 4 months by a cumulative 300,000 which only occurred twice since the 2008 crash.
The number of people employed per Household survey has not grown for 7 months. Since December, 2018 770k people have dropped out of the labor market, more than the number of new hires, thus if there were no labor force drop outs then employment would be lower. Since population grows 1% a year then we are in need of 0.5% growth in jobs in a half year just to breakeven, thus the opportunity cost in of lack of jobs in proportion to a growing population is that on a population adjusted basis unemployment increased by 0.5% in a half year. Bond yields were about 0.7% higher seven months ago, so if the economy was getting hotter the yields would have gone up instead of down.
The bond market reacted by cutting yields on the ten year Treasury bond by 2 basis points. If the record low employment was correct then bond yields would have risen significantly.
if someone loses a good job and gives up finding work after a year they disappear from the data. If they decide a year later to reenter the labor force with a $2 an hour tippable job, they may earn only 10% of their old job, yet they are counted as being employed.
What happened to the work force is that blue color workers lost good jobs 20 years ago to factories located in low wage EM countries but were able to replace the lost jobs by participating in the real estate bubble economy of 1997-2007 when real estate was grossly inflated by “easy qualifier” loans, etc. This produced employment opportunities for house flippers, real estate sales reps, etc. The current recovery in housing outside of California has not been nearly as robust as that of the pre-2008 era of reckless housing lending. Now that this segment has less opportunity then some workers may be forced to accept a minimum wage dead end “job” like a waiter and are thus counted as newly employed when in reality they are worse off than a decade ago.
The reduction in unemployment isn’t inflationary because, if a worker gets a dead end minimum wage job, especially if he has been recently unemployed, he will have difficult time qualifying for a loan. To expand the money supply and stimulate consumption one must get a loan. Thus an increase in low-quality type of jobs is not inflationary because these unfortunate people can’t get a large, low cost “A” paper loan. Instead they get tiny, unethical “B” paper loans which don’t do much to stimulate or inflate the economy.
At the end of an economic cycle unemployment becomes low but that may be because more affluent workers need to hire outsourcing services like waiters, maids, etc. and when a recession hits these low quality “underemployment” type of jobs quickly disappear.
Investors need independent financial advice about the risks of misunderstanding employment trends.