Unemployment rate stays the same

The Department of Labor this morning released its payroll figures for the previous month.  The data show that the United States added 162,000 jobs in March, the most jobs since three years ago in March.  A group of economists had expected the economy to add 200,000 jobs.  However, despite 162,000 jobs being added as reported by the DoL, the unemployment rate as reported by the Bureau of Labor Statistics stayed at the same 9.7%  in March.  While the BLS data is separately gathered, both sources of data are trying to reflect the truth of a singular reality: the U.S. labor market.

Additionally, February’s data were revised upward so that an initial report of 36,000 jobs lost was changed to a loss of only 14,000.  Using January’s and February’s revised data, the U.S. economy added on average 54,000 jobs per month in the first quarter.

Analysis: It is certainly a good thing that the U.S. economy added jobs last month.  However, let’s drill into these figures as each of them deserves greater scrutiny.

First, you may be wondering how the weekly jobless claims data that I almost always report relates to the unemployment rate.  A much simplified calculation of the unemployment rate is:

Net jobs / number of workers either employed or looking for work = unemployment rate

Today’s data are the total number of jobs added by the economy, whereas the initial and continuing jobless claims data are the number of jobs subtracted by the economy.  So these two figures are netted against one another to calculate the numerator, “net jobs.”  As you know the unemployment rate in March did not change from the previous month.  For the unemployment rate to be unchanged can happen in several ways.

First, the number of jobs added by the economy was equally matched by job losses.  In March that did not occur, there was a net job add.

A second way that the unemployment rate remains the same is if the denominator, those who are employed or those looking to be employed, grows by an amount that exactly offsets an increase in net job adds.  I am certain that is what has happened here.  The U.S. population of workers grows each  month because the birth rate in the U.S. remains positive.  Therefore, each month the economy has to add jobs just to keep pace with population growth.  The demoniator may also shrink if many people give up looking for work and remove themselves from the realm of the “looking for employment.”  I am certain that is happening, too.

So net, we have an improvement in the numerator, net jobs being added – a very good thing.  We have a growth in the number of folks looking for work because the population keeps growing – an inevitable thing that affects the unemployment rate no matter the economic situation, so it is a neutral factor.  Lastly, we have a number of people removing themselves from the pool of prospectively employed – a very bad thing.  Taken in total this means that if there hadn’t been a number of people removing themselves from the pool of prospectively employed we would have had a growth in the unemployment rate.

Let’s look at that numerator, net job adds, more closely.  A full 48,000 of the 162,000 jobs added was temporary hiring by the U.S. census.  Those jobs will be lost in the second half of 2010.  Another 40,000 of the big job add was also of temporary workers.  But wait there’s more…governments (state, local, national) accounted for 39,000 of the additional jobs.  In yesterday’s post I pointed out that government’s rely upon individual and business tax returns to increase their revenues, so ultimately for government hiring to sustain itself it must be supported by an improvement in the health of households and businesses.

If we add all three of the above figures up we have a total of 127,000 jobs that are either temporary, or that were added by increased government spending.  That leaves 35,000 jobs added by the private sector.  I consider that to be anemic job creation by the private sector and a sure sign that employers nationwide still are not seeing enough demand for their goods and services to risk hiring many new employees.

Lastly, let’s take that media friendly number of 54,000 average new jobs for each month in the quarter.  That means that (coincidentally) a total of 162,000 jobs were added in the quarter: 54,000 x 3 months = 162,000.  That means that January and February data netted to 0 job adds.  And we already saw that March’s figures were weak once we drilled down into them.

In summary, we have a shift from the treading water mode of the job creation situation to slightly anemic improvement in the job creation situation.  While exciting news, the economy must add jobs at a rate that keeps pace with the rising population.  In other words, we still aren’t out of the woods, yet!  In fact, the economy is relying upon unsustainable factors to add jobs right now.  The average Joe and Jane need more than crafty one-time solutions to improve their situation.  Unfortunately, right now the economy still is not strong enough to support real aid in the form of robust job creation.

The stock markets are closed today for Good Friday, but stock futures are reported to be mildly up.  I am not surprised, while today’s data are positive, they are barely so.

Importance grade: 10; beating a dead horse…the U.S. unemployment rate is king right now in global economic statistics.  The media will inject lots of hot air into this figure.  This is understandable, because 162,000 jobs added is no longer in the realm of a statistical error.  However, the core of the figure, 35K private sector jobs added, is still anemic.  What we have here is something important, while the magnitude of 35K jobs added is weak, it is a change in the direction of the trend.  That means:

The bottom of the unemployment situation has likely been reached.

Sans any external shocks to the economic system, the economy should start to have traction in the unemployment situation.

Have a great weekend everyone!

Jason