Another Ugly Jobs Report

In June, the economy dropped 467,000 jobs, bringing the official (U-3) unemployment rate up to 9.5%, its highest level since the recession of the early 1980’s. In some ways this was a mirror image of the May report, which featured a relatively small decline in jobs (-322,000 revised from an original read of -345,000) but a big jump in the U-3 unemployment rate to 9.4% from 8.9% in April.

June had a much bigger-than-expected loss of jobs (consensus was -367,000), but only a small 0.1% rise in the unemployment rate. The more comprehensive U-6 unemployment rate, which counts discouraged workers and those working part-time because they can't find full time jobs, also rose by 0.1% to 16.5%. A year ago the U-6 rate was 10.1%, so it is up 6.4 points, vs. a 3.9 point rise in the U-3 rate over the last year.

The chart below (from http://www.calculatedriskblog.com/) shows the history of the unemployment rate and the year-over-year rate of jobs growth. While the Reagan Era recession was worse in terms of the unemployment rate (at least to this point), the current downturn has been much worse in terms of actual job losses.



The reason for the small rise in the unemployment rate is that the size of the labor force declined by 155,000 while the number of people not in the workforce increased by 358,000.

There were several other weak elements to this report. The length of the average workweek declined by 0.1 hours to 33.0. While that does not sound like much, when you multiply it by 140.2 million people who are still employed in the country, it adds up to a lot of hours. A year ago the average work week was 33.6 hours. In effect there has been a slight amount of job sharing going on with employers cutting back the hours of everybody to avoid laying off as many people as possible.

Another way to look at this is the ratio of employment-to-population, or the employment rate, which is down to 59.5% -- a decline of 3.2 points since the recession started in December 2007. This is the lowest percentage of Americans working since April 1984.

This downturn has been particularly bad in terms of employment losses and the duration of the losses. The second graph (also from http://www.calculatedriskblog.com/) shows the percentage decline in employment from the peak for this downturn versus every previous one since the end of WWII. The only downturn that produced a greater percentage decline in jobs was in 1948, when we were shifting away from wartime production. The only more persistent downturn was the relatively shallow one of 2001.



Even for those who still have a job, things are not good. Average hourly earnings were unchanged for the month, and with a lower workweek that means that average weekly earnings were down by $1.85. While that is not huge, it does mean that people are not going to be keeping up with inflation.

With less money in their pockets and a change in attitude that favors more savings at the margin, people are going to be shopping less. This seems to me likely to affect some of the mid-range stores more than the discounters or those involved in the carriage trade. I see the continued weak employment situation as a big negative for some of the mall occupants like The Gap (GPS - Analyst Report), Limited (LTD - Snapshot Report) and the anchors like J.C. Penney (JCP - Analyst Report) and Macy’s (M - Snapshot Report).

I will have more analysis of this report later on.