The Bureau of Labor Statistics (BLS) reported this morning that the economy added 290,000 jobs in April and that unemployment rose to 9.9%. (See the above link to the BLS report.)
However, following the onset of the Great Recession, the government steadily removed workers from the work force, “banking” them in an unemployment la-la land, with the explanation that they simply dropped out of the labor force. More recently, in the last four months, they’ve begun the process of adding them back in. By doing so, the BLS effectively put a lid on unemployment at 10%. This is why Treasury Secretary Tim Geithner has been saying that unemployment will remain unacceptably high for a long time. Even though the economy may be adding jobs now, they have a lot of “banked” workers that they need to re-add to the calculation, not to mention the 150,000 new workers that population growth adds every month.
Unlike the government, I’ve been tracking unemployment by holding the labor force at a steady percentage of the population. Using that method, unemployment peaked at 12.0% in December, and has since fallen steadily to 11.2% in April. Had the government done the same thing, analysts would now be celebrating a nice 0.3% drop in unemployment in April, instead of fretting over a 0.2% rise.
The gains in employment are real. Of the 290,000 gain, only 66,000 were census workers who will be terminated in June. While the gains may be real, the bigger question is whether they can last. Much has been due to a spike in consumer confidence, thanks to the government stimulus punch bowl. But that’s now largely over. The housing tax credit ended a week ago and most analysts fear that a lot of home sales have been pulled forward, making the housing picture bleak for the future. And the Fed ended its purchases of mortgages in March, which had held mortgage rates artificially low. In addition, a lot of the growth in manufacturing has been a matter of rebuilding inventories. That can’t go on forever.
Anyway, here’s a breakdown of the job growth in April, beginning with the gains:
- Professional and building services – 80,000
- Census workers – 66,000
- Leisure and hospitality – 45,000
- Manufacturing – 44,000
- Health care – 20,000
- Construction – 14,000
- Mining – 7,000
- Wholesale trade
- Retail trade
- Information services
- Financial services
Employment declined in the following:
- Transportation & warehousing – (20,000)
Here’s my calculation of unemployment, followed by charts of the data:
As I said last month, this rosy picture will continue for at least another couple of months. What’s scary is that, when you look at the unemployment chart above, you see that the government’s numbers and my numbers are slowly converging at an unemployment rate of around 10%. That means that very high unemployment is going to be with us for a long time to come.
Another worrisome sign is that the Obama administration is pinning much of its hopes on big increases in exports. So far it’s not happening and, as conditions worsen in Europe, where our exports had actually increased slightly in the past year, our trade balance is likely to worsen. One bright spot for manufacturing has been the slight shift in preference of consumers for American cars vs. imports. It’s a trend that needs to be nurtured with a little backbone in our trade policy, but there’s no sign of that happening.
In summary, though this employment report has a lot of good news, there’s plenty of reason for concern that it’s not going to last.