A Closer Look at September’s Jobs Report Paints a Not so Rosy Picture

Unemployment Rate

If you’re a regular reader of our blog, you may have seen our recent prediction that September’s jobs report would fall short of expectations. It turns out that we were wrong and that actual jobs created during the month exceeded expectations by 28,000.  On Friday, the Bureau of Labor Statistics (BLS) announced that 248,000 new non-farm jobs were created during September and that the official unemployment rate dropped to 5.9%.  As expected, the financial markets responded positively, as the Federal Reserve’s continued taper of its bond buying program appears to have had little effect on hiring.  Additionally, the dollar strengthened on the news and gold and silver continued their recent decline, falling below key support levels of $1,200 and $17 an ounce, respectively, before rebounding slightly early this week.  On the surface, it appears as though the U.S. economy is clicking on all cylinders and that the employment situation has bounced back to pre-recession levels; however, a further look reveals continued structural weakness in the employment sector.  We’ll highlight three numbers that lead us to believe that the economy is far from healthy, and in fact, may be headed for a slowdown.

62.7%                                                                                                                                                      

One figure that failed to make the headlines on Friday is that the labor participation rate has dropped to a 36 year low of 62.7%.  What’s even more telling is that individuals not in the workforce increased by 315,000 over the prior month, which trumps the BLS’ headline figure.  The 315,000 individuals that dropped out of the workforce during September bring the total count to 92.6 million, a record high!  The poor participation rate is an indication that the employment situation is not so rosy and that many individuals are having a difficult time finding employment in their selected fields.  This fact is further highlighted by this recent article from IB Times, which reports rising unemployment rates among recent college grads.

155.9 Million

This recent article from David Stockman does a fine job of breaking down the current employment situation in the United States, but in particular, we were surprised to learn that the civilian labor force has only increased by one million to 155.9 million since the financial crisis began in October of 2008.  At the same time, the working age civilian population increased by 14 million.  This goes a long way toward explaining the current 36 year low in the labor participation rate.  Stockman also highlights what he believes to be the most important number from the employment report, which is 102 million.  This figure, according to Stockman, is the combined number of individuals that are not participating in the workforce or that are currently employed, which accounts for 41% of the adult population!  Needless to say, we should be paying attention to the labor participation rate rather than the headline-grabbing monthly BLS statistics.

59%

It goes without saying that if 41% of the adult population is out of the workforce or unemployed that the employment-to-population ratio is only 59%.  This compares to a ratio of just under 62% six years ago and 64.2% in 2000.  If the employment situation is truly improving, you would expect for this ratio to improve, not decline.  The lackluster employment-to-population ratio was also noted by James Abate in a recent Forbes article, and was provided as a reason as to why he believes that the Federal Reserve may be slower to tighten monetary policy than most experts believe.  When you take into account that many of the new jobs being created are low paying jobs, as highlighted in this recent YouTube video from Peter Schiff, it becomes readily apparent that we’re in for a long and slow recovery.

Summary

In summary, we’ve taken a closer look at the actual employment situation in the U.S. and have made the case that the official unemployment rate of 5.9% only tells part of the story.  In particular, it’s a telling sign when the labor participation rate of 62.7% is at a 36 year low.  Additionally, the civilian labor force has only increased by one million over the past six years compared to an increase in the civilian population of 14 million, which goes a long way toward explaining why the current employment-to-population ratio of only 59%.  The structural weakness that we’re seeing in the labor market will likely continue to hamper economic growth in the U.S.

Tony Davis
Tony Davis