In early April, the Bureau of Labor Statistics (BLS) reported a 126,000 increase in nonfarm jobs and an unemployment rate of 5.5%. Does this mean the U.S. economy is improving? (Source: Bureau of Labor Statistics, April 3, 2015.)
The unemployment rate has certainly improved from its 10% standing in September 2009. Because of the currently low-declining unemployment rate, many analysts are saying the U.S. economy is on stable footing with fair expectations of a steady growth path in the future. If we take a closer look at what the 5.5% unemployment rate is made of, however, we see the situation is anything but cheerful.
Unemployment Numbers Improving, But at What Cost?
The main drivers behind the decline in the March unemployment data are retail trade and restaurant services. Jobs in these sectors usually pay minimum wage. On the other hand, jobs in mining are down by 11,000. Jobs in construction, manufacturing, information, and financial activities were essentially unchanged.
What the numbers really reflect is a decreased demand for skilled labor and an increased demand for unskilled labor. Therefore, although there are jobs being created, we are gaining low-paying jobs and losing high-paying jobs.
There is also little change in the number of long-term unemployed workers. There are still 2.6 million of them, which make up almost 30% of all unemployed workers. Some got so frustrated that they stopped looking for jobs altogether. They are considered “discouraged workers” by statisticians. By this principle, in not actively looking for work, they are not considered unemployed.
Moreover, there are 6.7 million people who wanted to work full time, but were only able to work part time as a result of being unable to find full-time jobs. This is serious underemployment. The underemployment rate—which takes into account the unemployed workers looking for work as well as those employed part time but who want to work full time—is still at 11%, and has been above that since September 2008.
Looking at March’s numbers alone does not offer enough insight. In February of this year, there were 264,000 jobs added to the economy. Over the last year, the average number of monthly jobs gained was 260,000. The March slowdown of 126,000 new jobs represents a 51% decrease over the trailing 12-month average and signals a slowdown rather than growth.
Employment Numbers and GDP Growth
These anemic job numbers suggest that there is little room for skilled labor, and that wages are stagnant. In combining lower wages and shorter hours, consumers’ disposable income is constrained. Keep in mind that two-thirds of our country’s gross domestic product (GDP) comes from consumer consumption. Without an increase in consumer disposable income, it is unlikely that the consumption portion of the GDP will grow.
Last but not least, the March job report also made revisions to January and February’s employment numbers. In total, the number of jobs gained in the first two months of the year was actually 69,000 less than what was published in previous reports.
Add it up and you’ll see for yourself. The March job report shows that instead of growing, the U.S. economy is actually contracting.