The June jobs report – more of the same

By Steve Eggleston

Because Independence Day fell on Friday, the Bureau of Labor Statistics released the June employment and jobs report on Thursday. On the surface, much of the report seems strong, especially considering the jobs numbers for April and May were revised upward. On a seasonally-adjusted basis, there were 288,000 more non-farm jobs and 262,000 more private-sector non-farm jobs in June than in May, and the number of employed actually began to catch up to the 5 months of 200,000+ job growth with 407,000 more people employed in June. That dropped the seasonally-adjusted unemployment rate to 6.1%, the lowest since August 2008.

On the good half of the non-seasonally-adjusted side of the numbers, the job gain was close enough to Tom Blumer’s targets for him to say that it might be the beginning of the long-awaited breakout, at least if certain other fundamentals changed. Compared to June 2013, the number of employed grew to a June record of 147,104,000, an increase of 2,263,000 and 1,000 more than the increase in the civilian non-institutional population. The number of non-farm jobs increased by 2,566,000 to 139,761,000, also a June record.

Scratch a bit deeper, though, and there’s still plenty to be concerned about. Even though the number of employed grew by more than the growth in population, on a seasonally-unadjusted basis, the labor force shrank by 92,000 over the past year to 156,997,000. The resulting 63.35% labor-force participation rate (LFRP) is the worst June since June 1976, after the first 4 months’ worth of LFRP came in as the worst since the respective months in 1978 and May’s LFRP came in as the worst since May 1979.

Similarly, the number not in the labor force but who want a job shrank by 458,000 over the past year to 6,694,000. Given the non-adjusted employment-population ratio of 59.4% is, other than the past 4 Junes, June 1982, and June 1983, the lowest June since June 1977, that is a sign people have simply given up on the economy.

In another flashing neon sign of that despair, if one were to adjust the 66.6% non-seasonally-adjusted LFRP from June 2008, the last month prior to the start of the traditionalists’ definition of the Great Recession, for the aging demographics and apply it to the population and number of employed in June 2014, the resulting seasonally-adjusted unemployment rate would have been 8.5%, not 6.1%. Of note, June 2008’s unemployment rate was 5.6%.

Expanding on one of Tom’s updates of his look to include jobs in the accomodations (i.e. hotels) sector, the number of jobs in temporary services and accomodation/food services (i.e. hotels, restaurants and bars) increased by 559,000 over the past year, which accounted for 21.8% of all job growth over the last year. At this point last year, what was derided during the Bush administration as McJobs accounted for only 11.1% of all jobs.

President Barack Obama took the time to gloat that the drop in the unemployment rate was the fastest since 1999. Not much of that can be attributed to any positive developments in the larger economy, whether he was refering to the drop from the 10.0% unemployment rate in October 2009 or the 9.9% unemployment rate in April 2010.

Since I want to be fair, I’ll assume Obama was talking about the drop from October 2009 because the comparisons to April 2010 are even more damning. If the seasonally-adjusted LFPR in June 2014 would have been the 65.0% it was in October 2009, the unemployment rate would have been almost unchanged from then at 9.2%. To put it another way, the economic positives are only responsible for 0.8 percentage points of the 3.9 percentage-point drop in the unemployment rate.

Of course, the aging population means there necessarily will be fewer people working due to retirements. Because I needed to “freeze” the various age groups’ LFPRs at October 2009 rather than either June 2009 or June 2010, I had to use broader data than what I usually use to estimate the effects of the aging population. Instead of having data from 5-year age groups between 25 and 74, I had to use data from 10-year age groups between 25 and 54, and the rather broad 55-and-over group (to go along with the seasoned and unseasoned 16-19 and 20-24 age groups). After gathering that data, to get what the unadjusted number of unemployed would be if the only thing that affected the LFPR was changing demographics, I calculated what the unseasoned LFPR would have needed to be in June 2014 to match that age group’s October 2009 seasonally-adjusted LFPR, calculated what the unadjusted labor force would be for each age group, summed them up to get a total calcuated labor force, and subtracted the unadjusted number of employed from the that total calculated labor force to get a calculated number of unemployed.

Taking both the very marginal improvement in the economy and changing demographics into account, but not the additional departures from the potential labor force, the June 2014 seasonally-adjusted unemployment rate would have been 7.1%. That implies that 2.1 percentage points of the unemployment rate drop would have happened no matter what. It also implies that a full 1.0 percentage point of the drop was due to people just giving up on work.

In sum, over 1/2 of the drop in unemployment since October 2010’s (post-)Great Recession high is because of the aging population, and over 1/2 of the economic-related drop was not because of any positive developments but because of the abandonment of the desire to work. What a shock, SHOCK that is in the wake of the elimination of work-search requirements for food stamps.