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Saturday, June 8, 2013

May 2013 Employment Report

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According to the Bureau of Labor Statistics’s (BLS) establishment survey, non-farm payroll employment increased by 175,000 in May. Also, the unemployment rate (based upon the BLS’s household survey) ticked back up to 7.6 percent as more job seekers reentered the workforce. The job gains were slightly better than MarketWatch’s expectations of 164,000. 
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Employment rose in professional and business services, food services and drinking places, and retail trade; in fact, 122,000 of the 175,000 jobs added in May were those that generally command below-average wages). Manufacturing, meanwhile, shrank by 8,000 jobs. Government employment contracted at the federal and state levels. The change in total non-farm payroll employment for March was revised from +138,000 to +142,000, and the change for April was revised from +165,000 to +149,000. With these revisions, employment gains in March and April combined were 12,000 less than previously reported. 
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Other internals of the report were (at this point, no longer surprisingly) weak. Granted, the employment-population ratio rose slightly at the same time the number of persons not in the labor force retreated from its recent peak. However, these improvements are marginal and mean job growth is keeping up with population growth but not reabsorbing the glut of workers let go during the Great Recession. Moreover, rather ironically, the number of unemployed workers actually increased from 11.66 to 11.76 million. 
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Average hourly earnings rose by $0.01, resulting in a 2 percent year-over-year increase. With CPI-U running at an official rate of 1.1 percent, wages are technically keeping up with price inflation. 
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If there was a bright side to the employment report it is that most of the jobs reported in May were full time; the number of part-time employees actually dropped by 12,000. 
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Employment taxes withheld continue to ramp up on a year-over-year percentage-change basis, leaving less in consumers’ pockets. 
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Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 2.42 million fewer jobs than at the January 2008 peak. 
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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At May’s rate of job gains, it will take until November 2014 to recapture January 2008’s employment level (i.e., without adjusting for population growth).
Bottom line: This jobs report was “within or above expectations.”
Mike Shedlock pointed fingers in a recent blog posting. “Digging under the surface,” Shedlock wrote, “much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation.”
“As a personal anecdote, I was in the Traverse City, Michigan area this past week, a very nice town with nice shops in the downtown area. I asked one of the clerks about the number of hours she was working and they were reduced from 32 to 25, same as with numerous other shops on the same street. She did not understand why. She does now.
“I have asked waiters in many cities similar questions over the past few months and have received many similar answers.
“Multiply this scene by hundreds or thousands of shops in thousands of towns and the reduction from 32 to 25 hours coupled with additional hiring to make up the needed hours played a significant role in distortion of normal hiring patterns and unemployment statistics.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

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