Unemployment Becoming Chronic

Stocks for the week are down between 1.8% and 2.2% according to the S&P 500 and the Broad US Market respectively. Most of the decline comes today on the disappointing news that US employers added only 88,000 jobs in March, the slowest pace in nine months. Economists were expecting an increase of 200,000 workers.

The unemployment rate fell one-tenth of a percentage point to 7.6%, largely because of people leaving the work force. According to the Wall Street Journal and the Dept. of Labor those employed in the US tumbled by more than 200,000 while those actually looking for work fell by 496,000. The labor force participation rate fell to 63.3%, the lowest level since 1979 when women were still just beginning their move into the labor force.

One of the most powerful illustrations of unemployment in historical reference is provided by the Wall Street Journal. A quick glance reveals three bands of deep crimson indicating unemployment rates greater than 7% in 1975, 1982 – 83 and most recently 2009 – present. The small white squares denote recessions.


Remarkably and sadly, the severity and duration of recent ‘bleeding’ of human potential suffered in the last five years dwarfs previous high unemployment periods. As observed by the WSJ, the broadest unemployment rate, known as the ‘U-6’ includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find. That rate dropped to its lowest level since 2008. The drop is not a good sign.

The U-6 drop was not due to higher employment, but rather that people simply left the workforce for good, and in huge numbers. The long-term unemployed are getting discouraged, they are giving up. Employment becomes increasingly difficult the longer one remains unemployed.

Economic reports released this week were mixed, but considerably more positive than today’s jobs report. Manufacturing continues its expansion at a slow, but solid rate, according to Markit’s PMI. The index came in at 54.6 in March, well above 50 which is the threshold for expansion. Exports expanded, which is a good sign that global demand is not drying up.

The ISM manufacturing report confirmed manufacturing expansion, but not at a very fast pace. The index slowed to 51.3 in March for a sizable decline from 54.2 and 53.1 in the prior two months, according to Econoday. New orders fell to 51.4 for a 6.4 point decline from February and compared with 53.3 in January. Export orders on the other hand were very solid, rising 2.5 points to a 56.0 level, the best since April of last year.

Construction outlays rebounded 1.2% in February after dropping 2.1% in January. Private residential construction jumped 2.2% after slipping 0.1% the month before, as reported by Econoday. On a year-ago basis, overall construction was up 7.9% in February compared to 6.1% in January.

The service side of the economy as measured by the ISM non-manufacturing index fell 1.6 points to a 54.4 level that indicates the slowest rate of monthly growth since July last year, according to Econoday. The employment index was down a sizable 3.9 points to 53.3, indicating monthly growth was slowing. New orders also slowed and were down 3.6 points to 54.6. The takeaway from Econoday is that growth continues, but is slowing. Inflation should remain contained as long as activity remains within the rate of available capacity.

Earnings at S&P 500 companies decreased 1.9% in the first three months of the year, according to analyst estimates compiled by Bloomberg. It is the first year-over-year decrease in profit since 2009. Energy company earnings fell the most with a drop of 6.6% as oil traded at an average of $94.36 a barrel during the period compared with $103.03 in the first quarter of 2012. Profit at technology companies declined 4.1% for the second-biggest drop.

As our economy struggles to escape its bonds of debt and uncertainty Fed officials are offering as much transparency as they possibly can about continuing their QE3 stimulus efforts at least into the second half of this year. Today’s weak jobs report reinforces their position. President Obama and the Congress on the other hand show no signs of compromise on major policy issues sustaining unprecedented levels of fiscal uncertainty.

There is little good news for employment improvement on the horizon. Most of the jobs created by the economic recovery have been in low-wage sectors as small businesses adjust to radical new healthcare laws. Benign so far, the effects of sequestration through government layoffs are coming. Government contractors in aerospace and defense are making proactive layoffs that will become more acute in the private sector numbers in the months ahead.

Our country has survived significant periods of hardship, but the one in which we currently find ourselves rivals the most significant of them in terms of lost human potential. The cumulative growth of this recovery is the slowest of all 11 recessions since WWII. The failed stimulus policies of our leadership and the obstacles they have created through deadlock have created conditions that deprive millions of Americans of the ability to employ their talents and their energies in productive enterprise.

It is hoped that America’s economic engine will eventually break through the uncertainty. The energy boom offers some potential as does the return of manufacturing operations that were previously outsourced. But nothing could have greater impact on jobs than improved certainty around regulations and taxes for say the next five years or more.