195,000 new jobs in the US. But is this good news or spin?

By Neil Patrick

Last week, like many, I was keenly awaiting the announcement of the June US non-farm employment figures on Friday. And the headline figures were not too disappointing.

June 2013 non-farm private jobs growth came in at 195,000. The market expected 165,000. And understandably, the headlines were generally more positive than negative. The Wall Street Journal headline ran:

Job Gains Show Staying Power: Recovery's Gathering Momentum Drives Treasury Yields to a Two-Year High

USA Today ran with: Obama team: Recovery continuing

Whilst in Europe, the BBC reported (in its typical ‘yes, but’ fashion): Positive US jobs numbers add to rate rise speculation.

Commentators were generally upbeat too. Mark Zandi, chief economist of Moody’s Analytics said:

The job market continues to gracefully navigate through the strongly blowing fiscal headwinds. Health Care Reform does not appear to be significantly hampering job growth, at least not so far. Job gains are broad based across industries and businesses of all sizes.

Carlos A. Rodriguez, president and chief executive officer of ADP commented:

During the month of June, the U.S. private sector added 188,000 jobs, driven by gains across all sizes of businesses, and with small companies showing the largest overall monthly increase. Most notably, the goods-producing sector added 27,000 jobs in June, a marked improvement over the decline the previous month.

ADP’s analysis in summary was:

• Small and medium sized business created the majority of the jobs;
• Manufacturing and goods producing industries are not adding much to jobs growth;
• Most all, the jobs growth came from the service sector. The three month average of jobs gains improved – the rate of growth is accelerating. This month reverses the 4 month “less good” trend.
• May’s report (last month), which reported job gains of 135,000, was revised to 134,000 jobs. 

But I was less convinced than these expert commentators. Why? Because the US is still deeply mired a fiscal crisis that shows no signs of abating. Real economic growth remains elusive. Government debt is at unsustainable levels. The US and all the major world economies are more interdependent than at any time in history. Instability in the Eurozone remains an unresolved threat to the global economy and dangerous bubbles are continuing to inflate in all sorts of areas as diverse as commodities and student debt.

Equities markets continue to remain buoyant. But this is another bubble, supported by a flight from risk in the previously danger free bonds markets. So in my view equities prices are illusionary right now and do not represent the real prospects of the businesses concerned.

Of course, employment data is a rear view indicator. But looking at the ADP data, the overall trend for the year on year rate of growth has been literally flat since mid-2010. The year on year jobs growth has been in a tight range of 1.6% to 1.7% for the last 6 months and in June the jobs growth was no different at 1.7%.

So I decided to look behind the headlines and dig deeper into the data. I present this here so you can judge for yourself if you think such optimism is justified or not.

1. Non-seasonally adjusted non-farm payrolls rose 856,000 – better than last year, but 4 years showed better growth in the last 10 years.

2. There has been NO change in the number of unemployed

The BLS reported U-3 (headline) unemployment was unchanged at 7.6% whilst the U-6 “all in” unemployment rate (including those working part time who want a full time job) jumped up 0.5% to 14.5%.

BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)

3. Employment levels have been flat for three and a half years and the changes reported as signs of recovery are truly insignificant

Econintersect measures employment supply slack using the BLS unadjusted data base, shown in the graph below. Here you can see how insignificant the reported improvements really are (and how there has been little real change in the level of employment since the recession 'ended' ):

4. The total hours worked has flat lined since the middle of 2010.

Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked

5. Sustainable long term jobs have contracted whilst short term floating jobs have increased.

•  Average hours worked was unchanged at 34.5. A falling number does not indicate an expanding economy. This number has been in a narrow channel several months.
• Government employment contracted 7,000 with the Federal Government down 7,000, state governments down 15,000 and local governments up 13,000.
• The big contributors to employment growth this month were accommodation and food (57K), retail trade (37K) and administrative including temp services (36K).
•  The big headwinds this month was state government jobs (-13K) and education (-11K)
• Manufacturing was down 6,000, while construction was up 13,000.
• The unemployment rate for people between 20 and 24 decreased from 13.2% to 13.5%. This number is produced by survey and is very volatile – and this month’s degradation only reversed last month’s improvement.

6. Real earnings have stagnated at the lowest level for more than decade.

In June, average hourly earnings rose just ten cents to $24.01.

Private Employment: Average Hourly Earnings

So there you have what I consider to be the real numbers behind the headlines that show just how much the US jobs market remains stuck in an increasingly dangerous and precarious position. More than anyone I want to be able to report good news, but my conclusion is that we don’t really have any just yet and we should all plan accordingly.