Friday, September 5, 2008

August Employment: The Good, The Bad, The Ugly

Another 84,000 jobs gone and another large jump in the unemployment rate -- this time from 5.7% to 6.1%. The auto industry was a big player last month, which is no surprise given the dismal car sales figures we've seen in recent months. Motor vehicles and parts manufacturers shed 39,000 jobs and dealers let go another 14,100. Rumor has is that to spur sales, GM, Chrysler, and Ford will soon be offering a free house with each car purchase. Also on the losing end of the employment report were employment services firms, which reported a decline of 53,400 jobs last month.

Those adding jobs in August include the government (go figure) at 17,000 jobs, educational services (16,300), hospitals (14,800), and social assistance (uh-oh) which added 11,200 jobs. Also of note, construction had its best showing in a while with a loss of only 8,000 jobs due to some resilience in the nonresidential arena which is unlikely to last.

These figures are bad enough on an absolute basis, and they were worse than the expected decline of 75,000 jobs. Worse still, June's figures were revised from a loss of 51,000 jobs to a loss of 100,000. Let's also not ignore the increase in the marginally attached. Per the Bureau of Labor Statistics release:

About 1.6 million persons (not seasonally adjusted) were marginally attached to the labor force in August, an increase of 275,000 over the past 12 months. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
When we combine the unemployed with the marginally attached we come up with a rate of 10.7%, which is the highest in 14 years.

And, finally, let's turn to my personal favorite -- the Birth/Death model. (For a review of the Birth/Death model, see my article "Death, Taxes, and a Ridiculous Employment Report.") This go around, our government statisticians have come up with an increase of 125,000 jobs for August due to net firm births. This number makes no sense unless these are all recently laid-off folks starting up their own Ebay stores to sell off their ceramic unicorn collections to pay for gas for their SUVs. The fact that the birth/death model estimates that 9,000 financial jobs and 16,000 construction jobs were added last month should be proof enough of its absurdity.

Let's conservatively assume that there was no real job change per the birth/death model. That would mean that there were 209,000 nonfarm job losses in August instead of the reported 84,000.

Unfortunately, over the next few months, the employment figures are likely to suffer further as the last of the federal tax rebate checks are largely spent. In addition, the recent rebound in the value of the dollar coupled with increased economic weakness overseas will likely put the brakes on the recent export revival.

The good news is that if these trends continue long enough, US employment is certain to rebound as China and India will eventually start outsourcing their call centers and sock manufacturing business to us.

Disclosure: The Rubbernecker is short cutesy ceramic unicorns and sock manufacturing.