The key to growing the economy is creating jobs to drive spending and economic growth. So far, the economic renewal has been decent with some encouraging developments in the critical jobs area. April saw the creation of 244,000 new jobs and was the third straight month in which over 200,000 jobs were created. However, May saw stocks decline, producing a dismal jobs report on Friday morning.
While I was sensing that there would be a lower reading based on a weak ADP jobs report, the creation of only 54,000 jobs in May was a massive disappointment. Economists were hoping for the generation of 169,000 new jobs, so the shortfall was significant. And, to make matters worse, the unemployment rate edged higher to 9.1%, above the estimate of 9.0%.
The jobs situation is even worse when you consider that the general consensus among economists is that the country would need to add 500,000 jobs monthly to make a dent in the unemployment rate and get it moving towards full employment at around six percent.
There are currently about 15 million Americans unemployed and looking for jobs while struggling to make ends meet. We are seeing record numbers at food banks across the nation. The government is positive that jobs are being generated, but tell that to those barely holding on. The problem is that there are only about 2.9 million available jobs. That is five unemployed workers competing for one job. You don’t have to do any complex economic analysis to figure out that this is a problem and needs to improve.
Jobs need to be continue to accelerate, especially given that the government has high hopes after spending hundreds of billions on infrastructure and incentives and, in the process, building a massive deficit and adding to the over $14.0 trillion in national debt.
Jobs drive confidence and this gives consumers a reason to spend, especially on non-essential goods and services.
Not only is the number of jobs created not sufficient, but also the quality of jobs is an issue that many in the government do not talk about. Many of the jobs created are more the lower-paying service or industrial jobs. The problem that this poses is that the lower incomes generally make for less spending and, hence, a longer road to a spending recovery.
In addition, weak jobs confidence will impact the demand for housing and big-ticket items. We continue to see a soft housing market with declining prices. Consumers are also not spending freely on durable goods, as they would in a healthy economy.
In all, we need to see more jobs and the quality of those created must improve. There are far too many previously employed professionals now working at menial jobs.
The May reading is a red flag and could signal less hiring due to a feeling among companies that the future economic growth may be slowing…and this is not good.
The government will need to think about its Quantitative Easing part three to try to drive the economy and jobs creation; otherwise, we could see that double-dip recession we’ve been talking about.