SERIOUS MONEY:THIS IS no ordinary economic cycle. America's Great Recession came to an end during the summer of 2009 and, though the economy transitioned from the recovery phase to expansion during the final quarter of last year, the labour market remains flat on its back. The latest employment report, released last Friday, can be described as nothing less than a major disappointment.
The economist fraternity on Wall Street was bullish as per usual in the days leading up to that report, with the expected gain in non-farm payrolls ranging anywhere between 125,000 and 175,000. The experts were left red-faced as the release revealed that the US economy added just 18,000 jobs in June – the weakest reading since last September and well shy of economists’ rosy expectations.
Wall Streets high hopes that the economy was set to regain momentum following its recent soft patch have been dealt a severe blow not only by the disappointing headline number, but also by the underlying details, which provided little if any solace.
Revisions to May payrolls reduced that month’s gain from 54,000 to 25,000 and revealed that 44,000 fewer jobs had been created over the past three months than previously reported.
The less than inspiring data emanating from the establishment survey, which has a large-company bias, was corroborated by the more expansive household survey. This showed that 445,000 jobs were lost last month, erasing all gains in civilian employment since the spring of last year.
The June number was the largest level of job losses since the winter of 2009, which caused the unemployment rate to edge higher to 9.2 per cent, even though the labour participation rate dropped to its lowest level in more than 27 years.
Forward-looking employment indicators provided little optimistic cheer as well. The average working week dropped from 34.4 hours to 33.3 hours last month and is close to 20 minutes below the number that was typical before the recession struck 3½ years ago.
That may not sound like much, but businesses typically work their existing employees longer before they increase headcount. Each additional minute economy-wide is equivalent to about 62,500 jobs or roughly three months worth of net new jobs at the average pace of employment creation for May and June.
June’s employment report confirms what has been known for some time – this is the most disappointing labour market recovery in the modern era.
Before the new millennium, the typical US economic recovery and expansion saw non-farm payrolls exceed the number recorded at the business peak within one year of the cycle trough and, by the up-cycles second anniversary, the numbers employed had increased 5 per cent as compared with the figure reported at the recession’s trough.
Intense competition arising from increased globalisation in the most recent decade led first to a jobless recovery following the economic downturn in 2001, and now, to a jobless expansion as the labour market struggles to recoup the employment losses incurred during the Great Recession.
Payrolls registered a modest decline two years into the economic recovery that began towards the end of 2001 and it took almost two and a half years for the numbers employed to exceed the level registered at the previous cycle peak.
That experience however, is mild in comparison to today. The US economy has added roughly 500,000 jobs since the summer of 2009, but the number remains almost seven million shy of the figure registered at the 2007 peak.
Almost all of the improvement in the labour market to date is attributable to a decline in the pace of layoffs with no detectable increase in corporate Americas intention to hire. Indeed, hiring is currently close to 20 per cent below the lowest level recorded during the 2001 economic downturn.
Furthermore, all of the gains in employment recorded during this so-called recovery have been part-time; the number in full-time employment today is no higher than the summer of 1999.
The deep malaise apparent in Americas labour market means a return to full employment is unlikely before the next recession strikes. Full employment is believed by most expert commentators to equate to an unemployment rate of 5.25 per cent. Reasonable projections that account for growth in the working-age population suggest that countless US workers can expect to remain out of gainful employment for a decade or more.
America’s lacklustre pace of economic growth driven by necessary balance sheet repair following the ill-advised excesses of previous years is simply not sufficiently robust to induce corporate America to recruit from the swollen ranks of the unemployed.
As a result, the expansion remains jobless and thus unable to gain momentum. A self-sustaining recovery remains a distant dream and the on/off growth pattern is set to persist.
