the August 2011 Employment Situation

the employment situation

On Friday morning, September 2nd, before the start of trading on Wall Street, the Bureau of Labor Statistics released its monthly Employment Situation report for August 2011.  The figures showed a disappointing gain of 17,000 net new jobs in the private sector, which were offset exactly by 17,000 net losses by state and local governments for a net job change vs. July of zero.  This is the weakest job change showing for the economy in the past eleven months.

two adjustments

A strike (since ended) by 45,000 workers from Verizon’s loss making fixed-line telephone business reduced the private payroll figure from what otherwise would have been a gain of 62,000 jobs.   Not great, but better than +17,000.

On the other hand, the return of 22,000 workers from a partial government shutdown in Minnesota raised the government layoff figure from -39,000.  The latter figure is more in keeping with the recent trend, which has seen the government sector lose 550,000 jobs since September 2008.

Ex these two non-recurring items, the net figure would have been +23,000.  This compares with a gain of 117,000 jobs in July (+154,000 private, -37,000 government).

Business economists had been projecting a gain of from 55,000-80,000 jobs.  It’s unclear, however, whether forecasters had factored in either of the one-time adjustments into their estimates.  You’d think everyone would have known about the two, but you never can tell.


The BLS revises its initial monthly figures in the subsequent two months, as more contributors send in data.

The July numbers were initially reported as +117,000 (+154,000 private, -37,000 government).  They’ve been revised down to +85,000 (+156,000,-71,000).

The June figures were initially  reported as +18,000 (+57,000, -39,000).  They were revised to +46,000 (+80,000, -34,000) in July and back to +20,000 (+75,000,-55,000) this month.

The private sector had been doing pretty well until August, and revisions have generally been positive.  If there’s anything surprising about the BLS numbers, it’s the extent of the weakness in the state/local government job sector as these entities struggle to eliminate budget deficits–where revisions have generally been negative.  In contrast, during 2005-2006, when tax revenues were rising, state and local governments were adding about 20,000 new employees monthly.  Over the past quarter, they’ve averaged job losses of about 55,000 monthly–a negative swing of 75,000 positions.

investment implications

The August BLS report is more evidence that the present high unemployment is a structural phenomenon, not a cyclical one.  We know the US needs to create at least 100,000 new jobs monthly to absorb new entrants to the workforce.  So, if the August figures were to be the beginning of a new lower trend, the unemployment rate, now 9.1%, would gradually rise, doubtless increasing social and political pressure for change.

On the surface at least, the overall BLS data run contrary to recent reports by publicly listed retailers of strong consumer spending.  In reality, this is just another aspect of the current economic situation.  In over-simple terms, the top 25% of Americans by wealth do half of the discretionary spending in the country, and the middle 50% do almost all the rest.  The bottom quarter, where chronic unemployment is concentrated, has very little money to spend.  Also, an increasing proportion of this quartile’s outlays is trading down to local products/stores from companies that don’t have the size and financial strength to list.  Focus on wealthier Americans and trading down by the less affluent are two reasons why Tiffany’s or Macy’s comps are rising and Wal-Mart’s are falling.

Continuing high unemployment is, of course, an urgent social problem.  It need not be a stock market one, however, since the profits of publicly listed companies are concentrated outside areas of unemployment-linked weakness.  In addition, the remedies for long-term unemployment–retraining and continuing financial assistance during career transition–are well-understood.

To date, Washington seems to me to be uninterested in either understanding the issue or taking steps to address it.  Instead, politicians of all stripes appear consumed with either avoiding blame for the current condition or affixing blame to their political opponents.  That attitude has doubtless frightened at least some consumers.  So it’s at least possible that common sense won’t prevail and that Washington will continue to bungle and depress economic activity by its actions–transforming a political problem into a stock market one.

I think this worry is part of what Wall Street is reflecting through the current period of high volatility.

My experience is that the worst possible outcome seldom occurs.  At this point, I see no need to become ultra-defensive.  But I do think the best we can hope for is a sideways market until we have more clarity on the political situation.

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