Jobs are the heartbeat of the US economy. It’s not rocket science that without Jobs, the economy slows. Jobs drive housing and consumer spending which in turn drives company sales and revenue. Revenue, naturally, determines corporate expansion.
Each month the Labor Department gives us a read on Job creation. And today it was dismal. The expectation was for 185,000 jobs with 220,000 coming from the private sector, but was downgraded prior to the release.
Looking for a silver lining can be challenging at times and this morning was one of those times. This month the jobs picture didn’t paint a pretty picture. The Labor Dept reported 54,000 jobs created in May, of which 83,000 were in the private sector.
How much stock do we put in this report? That’s a good question. The employment numbers come from a survey of established businesses. Obviously the Bureau of Labor Statistics (BLS) can’t call every business in the US, so they survey larger businesses. This means they miss the growth (or contraction) in the small business sector, which is where the largest percentage of new jobs are created.
So what do they do? They use a model called the Birth/Death Ratio. This takes an estimate of the actual births and deaths of real businesses for the last five years to make current estimates of new jobs created from new businesses. This is why we often see revisions to prior months as this estimation model is looking backwards.
Despite how the report is calculated, it was ugly and there just isn’t enough lipstick for this pig. Unemployment ticked up to 9.1% which was anticipated. Some of the uptick to the unemployment rate was due to more people coming into the labor pool. The unemployment number doesn’t account for “discouraged” workers and those falling off the unemployment benefit rolls. The real bottom line, thirty (30) million people are looking for full-time work – and that is a huge number.
The second round of quantitative easing (QE2) ends this month and growth has been paltry. In November, 2010, QE2 was implemented to stimulate the sluggish economy – however the economy is growing at a snail’s pace of 1.8% and the jobs report is consistent with this weak data.
Business is not singing the hiring tune …. immediate economic issues, healthcare, commodity prices, FIN Reg, Moodys, corporate taxes, and the political football are playing into the uncertainty that keeps corporate America sitting on the sidelines with their cash.
Until certainty returns, look for the Job market to continue to sputter along.