With the February job numbers being released just last week, the mainstream is optimistic over the drop in unemployment. But jobs growth isn’t inherently positive for the U.S. economy; in fact, the February job numbers could hinder economic growth.
Unemployment Rate Drops to 5.5%
According to the U.S. February job numbers, the unemployment rate is now at 5.5%—its lowest level since 2008. In February, 295,000 jobs were added to the U.S. economy, and the previous months’ job numbers were revised higher. (Source: Bureau of Labor Statistics, March 6, 2015.) Looking at this, politicians and mainstream economists are convinced the U.S. economy is getting stronger. But should the February job numbers be taken seriously?
I am asking one simple question: has the U.S. jobs market really improved?
I am not so optimistic. In fact, I believe the U.S. jobs market remains fragile and is a reflection of a weak U.S. economy.
Broader measures of unemployment rates include all those working part-time, those who are looking for work but have no jobs, and those who have become discouraged and quit looking. These labor force participants are captured by the underemployment rate. In February, the rate stood at 11%. Since September 2008, this metric has stood at 11% and above.
Labor Force Participation Rate in Decline
If the U.S. jobs market was improving, one would assume more and more Americans would be working. In reality, we see the complete opposite. Since December of 2007, the labor force participation rate has decreased by 3.2%—the lowest level since 1978! (Source: Federal Reserve Bank of St. Louis web site, last accessed March 9, 2015.) This means fewer people are looking for work now than at any other point in the last 37 years.
But that isn’t all…
In February, 6.6 million Americans were employed part-time for economic reasons—they wanted full-time work, but they couldn’t find it. Another 2.2 million Americans were marginally attached to the labor force, meaning they looked for work at some point in the last year.
U.S. Mainly a Country of Low-Wage, Part-Time Workers?
One of the reasons why U.S. unemployment rates dipped is because of the significant increase in part-time work. Unfortunately, part-time jobs are being created in low-wage sectors. Low wages do nothing to boost consumption, which is what drives the broader American economy. In other words, if the average American isn’t paid much, he doesn’t have spending money; no consumer spending means no economic growth.
For example, employment in retail trade continued its upward momentum, adding 32,000 jobs in February. This was significant because February’s reading of 15.50 million retail employees is just shy of the pre-recession peak of 15.57 million. On the other hand, the manufacturing sector, a source of higher-paying jobs, is 10% below its pre-recession levels and 22% below its long-term average. (Source: Federal Reserve Bank of St. Louis web site, last accessed March 9, 2015.)
What the February Job Numbers Really Mean
The overall unemployment rate may be down, but the fact of the matter is that the underemployment rate is still sky-high, manufacturing sector jobs are scarce, wages are stagnant, and low-paying, part-time jobs are abundant.
This does not look good for a country that gets 70% of it’s gross domestic product (GDP) from consumer spending. If consumer spending faces headwinds, the U.S. economy will continue to struggle.