Diary

Employment Report Out: Unemployment Unchanged at 9.6%

Today the BLS released the Employment Situation Report for September, which showed a decrease of 18,000 jobs ex-census. This loss was predominantly generated from local governments who shed 76,000 jobs last month, while the private sector added 64,000 jobs over the same period. This report also included the primary benchmark revisions (how far off the Establishment Survey has been for the year of March 2009 to March 2010) and found that an additional 366,000 jobs were lost over that period (a change of about -.3%). The labor force was virtually unchanged (a gain of 48,000 participants) and the unemployment rate was unchanged at 9.6% (most likely due to less new entrants to the labor force), with the more inclusive U-6 rate increasing to 17.1%. The number of those who have dropped out of the labor force, but still would like a job increased by 300,000 in September as well. Both the employment-population ratio and labor force participation rates were unchanged.

Overall, the report was fairly neutral except that at this point in a “recovery” we should (obviously) be seeing much greater job creation numbers than we have (although we are still ahead of the pace of recovery of the last two recessions). And once again this report highlights the structural changes we are undergoing, as the educated (ie bachelors degree or higher) have only a 4.4% unemployment rate. Nothing in this report indicates that we are heading toward a double-dip recession at this point.

To look at some reasons for why we are not creating jobs, we need to examine the economic changes that are (or have been) taking place since our last strong recovery (following the 1981 recession) and why we are simply in a completely different place this time.

savings81vnow
First, if we look at the savings rate, we can clearly see that following the 1981 recession it dropped precipitously, followed by an overall decline throughout the decade, while today we have experienced the opposite, with the savings rate rising and little expectation that it will fall dramatically enough to really spur much needed demand. This brings us to retail sales,

realretailpercapita
which I have expressed here in dollars per capita to better highlight the decline in consumer spending since the recession began (reflected by increased savings and loss of income). This bodes poorly for any job creating recovery, as our economy is roughly 70% consumption based and their is again little reason to believe that given their overall financial (ie debt) situations that we are going to see the demand needed to create the jobs necessary to bring down the unemployment rate (which means we have to rely on exports).

Finally, I bring up the graph that is most damaging to any potential for a job creation recovery (coupled with a lack of demand) and that is productivity.
productivity
Here I highlighted the difference between the 80s recovery/boom and now, which clearly shows that during the 80s, productivity increased by roughly 15%, while since 2001 we have seen an increase of 25%. This increase in productivity (notice the huge jump during the recession) is clearly keeping job creation down (except for the housing bubble) and will become a much bigger problem going forward should it continue its’ upward climb (especially for those without education).

So, while we can discuss costs like regulation and taxes as hindrances of job creation, they are but ancillary to the real issues of an increased savings rate (which is good over the long run, but creates the tragedy of thrift in the short term) and our ever increasing productivity that now appears to be reaching a point where (in terms of costs of implementation) new industries immediately begin with higher rates of productivity than in the past and thus greatly limit job creation.