Friday, July 08, 2011
Latest Unemployment Data Reaffirms America's Dire Economic State
The hits just keep on coming.
The U.S. was dealt yet another dose of bad economic news today when the Bureau of Labor Statistics announced that a mere 18,000 jobs were added to the American economy in June.
Despite the meager increase in jobs, the unemployment rate still rose to 9.2%. That's because the ranks of the newly unemployed exceeded those of the newly employed.
By now, we've all become accustomed to negative economic data, but this news took even Wall St. by surprise.
The "Street" had projected that between 90,000 and 140,000 jobs would be added in June, still a paltry sum.
But that wasn't the only bad news; the May employment numbers were also revised downward today; only 25,000 jobs were added to the U.S. economy in May — less than half of what was originally projected.
This sort of tepid job growth is really problematic.
Labor experts say a bare minimum of 125,000 jobs must be added each month simply to keep up with population growth. This means that 1.5 million jobs need to be created this year just to employ all of the new high school and college graduates, plus recent immigrants.
However, even if the U.S. were to achieve that kind of growth, it still would not address the roughly 24 million Americans who are already unemployed or under-employed, meaning they can only find part-time work.
To provide some perspective of the hole we're in, consider this: the government says that 1.3 million jobs needed to be created every year from 2006-2016 just to keep up with the growing labor force. Obviously, that hasn't happened.
In June, the labor force participation rate fell to a 27-year low of 64.1 percent, as more Americans gave up looking for work altogether. An individual has to run up against a wall at every turn to entirely give up looking for work. It's a sign of utter hopelessness.
Largely out of fear of losing their jobs, American workers have become so productive that companies are now doing more with less. That has eliminated any incentive for them to hire.
When so many people are out of work, there is also no incentive for employers to offer wage increases or high starting salaries. Many professionals are now working in jobs for which they are considerably over-qualified. Beggars can't be choosers
The stark reality is that there are 7 million fewer workers today than just four years ago. The number of unemployed Americans has roughly doubled, to more than 14 million.
What's most disturbing is that the government's unemployment figures don't include those who have lost their unemployment benefits, or those who have only part-time jobs but want full-time work.
Economist John Williams of ShadowStats.com (who provides detailed economic reports for U.S. businesses) puts the real unemployment rate at a whopping 22.7%. That's akin to the Great Depression.
The current state if affairs is nothing new; job creation has been in a long-term downturn.
Remarkably, job growth in the last decade was actually negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were created.
According to the Bureau of Labor Statistics, just 1.1 million jobs were created last year. That's nearly as many as in the previous decade combined.
The troubles go back many, many years. In fact, job creation has been slowing for decades, and that's a very bad omen.
According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased at about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.
And it's taking longer and longer to recover from each successive recession. The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.
The historical precedents and current trends make it very difficult to feel optimistic about the future.
The long-term projections for younger workers, in particular, do not look good. Many older workers are putting off retirement out of necessity, leaving fewer positions available for younger workers.
The employment statistics for the last three classes of college grads have been, and will continue to be, quite bleak.
All of this has negative consequences for our consumption-based economy, which is 70% reliant on consumer spending. Obviously, there is less consumption when fewer people are working, as there is less disposable income directed back into the economy. It also means lower tax receipts at both the state and federal levels.
If unemployment remains stubbornly high, wages will also remain stagnant. That would create a negative feedback loop of both lower both consumer spending and economic output.
American consumers are already strapped and heavily burdened by debt. Consequently, we will not spend our way out of this malaise.
Our unemployment problem is huge and complex. Millions of lost jobs are never coming back. Consequently, millions of American workers need new skills and new training.
However, the problem is much bigger than creating the 1.5 million jobs necessary to keep up with annual population growth.
Even if the nation had started adding 2.15 million private-sector jobs per year starting in January of 2010, it would have needed to maintain that pace for more than seven consecutive years (7.63 years), or until August 2017, just to eliminate the current jobs deficit.
It's abundantly clear that this isn't going to happen.
The U.S. is faced with a grim new reality of lower economic growth, less consumption, higher unemployment, lower wages, lower government revenues and unwieldy debt levels at the government, corporate and consumer levels.
Our present economic state is truly quite stark. Sadly, for most Americans the future is virtually certain to be less prosperous than the past.
These are hard times indeed. And they are poised to get even tougher.