Economic Update—June 7, 2013

By Steve Scranton, SVP, CFA
Chief Investment Officer

Employment Report

The Bureau of Labor Statistics (BLS) provided information regarding the nation’s employment situation for May and the news showed more of the same uneven pattern that has existed since the recovery began. The nation added 175,000 jobs in May which was above the consensus forecast of 165,000. Unfortunately, the BLS revised lower the jobs added in the past two months. The net result of the downward revisions is that, over the past two months, the nation added 12,000 fewer jobs than originally reported.

The composition of the jobs growth was disappointing from a wage and income standpoint. All of the jobs growth occurred in the service industries. Goods producing jobs (traditionally higher paying) lost 1,000 workers and government jobs fell by 3,000 workers. On the service sector side, 96,300 jobs were in the traditional lower paying jobs (retail, temporary help and leisure & hospitality). These three jobs sectors accounted for 55% of the total jobs growth in May.

The unemployment rate rose this month from 7.5% to 7.6%. This was due to 420,000 people either newly entering or re‐entering the labor force. As we have discussed in the past, since the recovery began, many people have given up looking for work and dropped out of the labor force. Today’s report indicates that some have now begun looking for work again. The additional measures of the nation’s employment situation showed stability. The labor participation rate was rose from 63.3% to 63.4% and the employment‐population ratio was unchanged at 58.6%.

The alternative measures of unemployment show a mixed bag of results. The number of involuntary part time workers rose by 194,000. This continues to support the anecdotal evidence that we have heard where many companies are moving employees to part time status to manage costs.

April May
U3 (Official unemployment rate) 7.5% 7.6%
U4 (U3 plus discouraged workers) 8.0% 8.0%
U5 (U4 plus marginally employed workers) 8.9% 8.8%
U6 (U5 plus involuntary part time workers) 13.9% 13.8%

The youth of America continue to suffer. Two out of the three categories of America’s youth saw their unemployment rate increase.

Age April May
16-17 years 27.3% 27.5%
18-19 years 22.6% 22.4%
20-24 years 13.1% 13.2%

Education continues to be a major theme for the people seeking work. The data continues to show that education plays a critical role in people’s ability to find work.

Education April May
Less than a high school education 11.6% 11.1%
High school, no college 7.4% 7.4%
Some college or associate degree 6.4% 6.5%
Bachelor’s degree or higher 3.9% 3.8%

The data on the long‐term unemployed was mixed. The average duration for the unemployed rose from 36.5 to 36.9 weeks. The percentage of people unemployed for more than 27 weeks fell from 37.4% to 37.3%.

The news was discouraging on the salary front. Average hourly earnings were unchanged from last month. This translated into a 2.0% increase on a year‐over‐year basis. If the economy is going to rely on the consumer to increase economic growth through higher spending, today’s salary data is not encouraging.

The three indicators that we watch as potential indicators of future increases in full time hiring showed mixed results.

  • Average work week was unchanged at 34.5 hours.
  • Overtime fell from 4.3 to 4.2 hours.
  • Temporary help increased 25,600.

Analyzing the data shows the following breakdown of where jobs were created:

Industry Sub-industry Industry Jobs
Sub-industry Jobs
Goods Producing (1,000)
Mining and Logging 0
Construction 7,000
Manufacturing -8,000
Service Producing 179,000
Whoesale Trade 7,900
Retail Trade 27,700
Transportation & Warehousing (3,900)
Information 3,000
Financial Services 4,000
Professional & Business Services 57,000
Education & Healthcare 26,000
Leisure & Hospitality 43,000
Other Services 14,300
Government (3,000) (3,000)
Total 175,000 175,000

There has been much talk recently of the Federal Reserve reducing (i.e. tapering) the amount of stimulus that they are providing to the economy. Today’s employment report is not strong enough to justify any immediate reduction in support. Today’s report is evidence of a slow but steady improvement in the employment situation rather than any robust acceleration in jobs creation.