Why 3.8 Percent Unemployment Rate Could Be Bad?

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Lauren Weber of the Wall Street Journal cites a research paper showing that the unemployment rate will soon get down to 3.8% within the next fifteen years, which sounds good. Given that the unemployment rate is However, this is deceptive because they’re saying that will be due to labor shortages.  I address this concept in a previous blog entitled “Why A Lower Unemployment Rate Is Not Always Good”.

The main problem is that we will be having a large segment of our workforce retiring, but there will be challenges in replacing this skilled workforce.  By retiring, they will leave the labor force and that will lower the unemployment rate.  In addition, you have younger workers, who have been slow to adapt to a changing labor force.  While they are attaining college degrees at a faster rate, it is not necessarily in disciplines in high demand, such as STEM (science, technology, engineering, and mathematics).  If they become discouraged and drop out of the labor force in large numbers, then that could lead to a misleading drop in the unemployment rate.

Therefore, a declining unemployment rate does not necessarily mean a healthier labor market.


Three and Three Series: July Jobs Report

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In my inaugural three on three series, I will highlight three positives and three negatives that can be gleaned from July’s unemployment report released by the Bureau of Labor Statistics (BLS).

As for three positive takeaways,

  1. We saw the unemployment rate fall from 7.6 percent to 7.4 percent over the last month, and also experienced job growth of 162,000, which represents thirty-four consecutive months of positive job growth.
  2. A broader measure of unemployment (U-6) also decreased over the last year and is now down to 14 percent from 14.9 percent last year.
  3. Prospects of the long-term unemployed showed improvement with the median length of unemployment down from 16.8 weeks last July to to its current rate of 15.7 weeks.

However, there were also some negative takeaways, such as:

  1. This was the slowest amount of job growth since March and it fell short of analyst expectations of 180,000 jobs that were expected to be generated.
  2. Most of the job growth occurred in seasonal industries, such as retail trade and food services, while manufacturing and construction activity remain stagnant.
  3. While the labor force did not shrink much over the last year, the number of discouraged workers increased from 852,000 to 988,000.

In summary, the July jobs report was adequate, but little suggests that momentum is rising.  The next three months will be critical as we will see whether sequestration and congressional gridlock will darken future job prospects.

Job Report Solid, But Remains Insufficient

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The Bureau of Labor Statistics released the U.S. jobs report for May and it was solid with jobs growing by 176,000 and the unemployment rate rising slightly from 7.5% to 7.6%.  Since it met the expectations of most analysts, the markets responded positively with stocks edging up.

On the bright side, we are seeing a steady downward trend in the unemployment rate with it falling from more than a half a percent from last May (8.2% to 7.6%).  The largest gain in jobs was in the business and professional services sector.  Also, a broader measure of unemployment that measures individuals, who are underemployed, has fallen from 14.4% to 13.8%.  That suggests that people are finding it easier to find full-time work.  Lastly, there has been some modest progress for the long-term unemployed.  The number of long-term unemployed has fallen from 42.4% to 37.3%/  However, this is still unacceptably high.  During normal economic times, this rate was closer to 20%.

On the negative side, it appears that more people are dropping out of the labor force.  Even though the number of discouraged workers declined over the last twelve months, that might be misleading.  Another indicator that measures the number of people, who want a job, but are currently not in the labor force because they believe employment prospects are dim paint a different light.  This shows that there are now 7,193 individuals, who are out of the labor force, but want to work.  This number is up from 6,835 in May 2012.  Lastly, the rate of job growth is insufficient to get us back to normal employment anytime soon.

Check out this quote from Heidi Shierholz from the Economic Policy Institute, who stated that:

“Given our deficit of 8.5 million jobs, we need more than 300,000 jobs per month to get to full employment by May 2016, three years from now and six months before the next presidential election.  At the job growth rate of the last year, we will still have a deficit of 4.6 million jobs in May 2016.”

While we can be encouraged that the labor market is showing steady growth, more robust job creation is necessary for our economy to prosper.

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