United States: Positive Labor Numbers Hide Bad News

Data released by the US Department of Labor (DoL) showed the United States added 146,000 jobs in November and the unemployment rate fell .2 percent to 7.7 percent. Economists expressed positive surprise at this number because it exceeded their projections and the Obama administration trumpeted the results as more proof that their policies were working as the unemployment rate fell to rates not seen in four years.

I, on the other hand, do not agree with the government’s point of view because I don’t think a simple rate decrease tells the whole story for a number of reasons. The first reason behind the lowered rate is that 350,000 unemployed individuals made so little progress in acquiring jobs that they simply gave up looking for work and the DoL stopped counting them as part of the unemployed. Keep in mind that this data is just for November so the total number of these people is much higher as is the actual unemployment rate.

The second reason is that jobs that were created were in seasonal industries and will likely disappear by February. If one takes a look at the data, one sees that the largest number of jobs – 53,000 – were added in the retail sector and this was done before the start of the current shopping season; this means that it’s likely that these folks will lose these jobs right after January. In addition, over the past 12 months, average hourly earnings have risen only 1.7 percent so these poor folks will not only lose their jobs in February, they won’t make a lot of money in the meantime and will likely get hit with additional taxes.

Other reasons include negative growth in sectors that traditionally signify a growing economy – construction and manufacturing. While there may be good reasons for the lack of recovery in these two industries – the impact of Hurricane Sandy and continuing slowdown in other parts of the world – they don’t tell the whole story. It’s also not certain these so-called positive numbers will remain so next month i.e. who is to say that the DoL won’t change these numbers next month as it did when it reduced the September and October jobs number by 49,000. Finally, and this is the worst part for an economy driven by consumer spending, consumer sentiment fell significantly according to a December reading from the University of Michigan. So, my assessment is that while these numbers are positive, they aren’t as good as they seem at the first glance or as the media is making them out to be.

On the other hand, they aren’t as bad as the Republicans and the right-wing media say they are either. Jobs are being added in numbers that Europe would seriously envy and given the headwinds against the recovery, this is a positive sign indeed. These headwinds include a possible slowdown in the demand for US bonds and bills in the international market at the current – low – interest rates, an uncertain future for tax rates, and a global market that cannot be affected by US policies.

In conclusion, despite the protestations of economists, the recession does not seem to be over, and exceeding low expectations is not a cause for celebration. The primary questions to me are how long it takes for an economy to turn itself around and at what point does one argue that an administration’s policies have not worked.