Saturday, May 5, 2012

April Job Report

April's job report was a disappointment, showing a net increase of 115,000 jobs for the month.  In addition, the labor force participation rate dropped to the lowest rate since 1981 as more people dropped out of the labor force.  As discussed previously, part of this was likely due to seasonal adjustments that were distorted by the timing of the worst of the recession (seasonal adjustments post-2009 differ significantly from those pre-2009).  Basically, seasonal adjustments are based on the historical pattern of hirings/layoffs by month.  For example, in a normal January, employment at retailers declines as those hired for Christmas lose their jobs.  The steepest job losses of the recession took place in the January-February 2009, so using those months to estimate seasonal patterns would imply larger than usual layoffs in January and February.  When January and February data are seasonally adjusted in the future (following 2009), more jobs are included to reflect the new seasonal pattern.  In other words, some of the layoffs due to the recession end up being attributed to seasonal factors.  This led to seasonal data overestimating job growth in January-February 2011 and 2012.  Given that seasonally adjusted employment was overestimated early in the year, growth in subsequent months would be undestimated.  Since I raised this issue back in February, it's clear that this is not just an excuse to explain away the most recent reports about the job market.  In addition to seasonal adjustment issues, the warmer than usual weather had an effect as well.  In addition, as noted previously, the relatively strong employment gains earlier this year were hard to justify given the modest economic growth.

On to the details of this month's report.  A relatively high portion of the jobs being created continue to be in relatively low-paying sectors of the economy as accomodation and food services added nearly 27,000 jobs while temp agenices added 21,000 jobs (over 40% of net new job creation).  The index of aggregate hours worked has been flat over the last 2 months, suggesting that economic growth for the second quarter has gotten off to a weak start.  The labor force participation rate for all adults is now the lowest since 1981.  For adult men (20 and older), it's now the lowest on record (records started being kept in 1948) while for adult women, it's the lowest since 1995.  Economist keep waiting for discouraged workers to re-enter the job market, but instead more people keeping dropping out.  Part of it is due to aging of baby boomers, but part is due to economic weakness and may lead to structural problems as the skills of these potential workers continue to deteriorate.

How bad is the news?  Not as bad as it sounds (perhaps due to low expectations!).  The economy continues to grow modestly and jobs are being added, but the job gains reported earlier this year are now generally accepted to have been misleadingly high as the economy still continues to struggle to recover from a historic financial crisis.