Labor Markets Worsen

Posted by: Michael Mandel on July 03

This morning’s employment reports show a pervasive and broad weakness in the labor market. And frankly, I think the situation is actually considerably worse than the numbers show.

Let’s take a closer look. Construction, manufacturing, retail, wholesale, transportation, information, financial activities, and temporary help services are all down in June. The industries which appear to be adding workers are natural resources, utilities, professional and technical services, education and healthcare, and leisure and hospitality.

BUT!! I just don’t believe the apparent gains for professional and technical services, and for leisure and hospitality. In the professional category, the BLS data seems to be showing that architectural and engineering firms are adding workers. No, no, no—that can’t be true.

And the household survey shows that the unemployment rate in the leisure and hospitality industry—which primarily includes restaurants, hotels, and casinos—has jumped from 7.2% a year ago to 8.9% today. 8.9%!! That’s not the sign of an industry which is adding workers.

It may be time to take a look at the role that illegal immigrants are playing in this recession. I suspect that they are getting whacked hard, but not showing up in job numbers.

Taken all together, I am convinced that we are well into an official recession, once all the revisions are done.

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Reader Comments

Brandon W

July 3, 2008 11:41 AM

Forget the published "rates"... I think we've established that they're pure fiction.

Unemployment is growing rapidly, oil is pushing toward $150/bbl and up, the entire financial system is verging on collapse (as they try desperately to pretend it isn't), our economy is based on desire-satiation instead of needs-fulfillment (completely unsustainable), and that consumer is tapped out.

Game over. We're done. Want to get your name into history, Mike? Start writing the book on Great Depression II.

Lord

July 3, 2008 02:52 PM

We should get a little boost from the bump in the minimum wage.

Rebecca

July 3, 2008 02:55 PM

As usual, those in the trenches are acutely aware of this looming and omnipresent recession breathing down on us....We all know the burden of filling our gas tanks - America is leaning heavily on credit cards, and you know to what direction that will bring us. i pity those living in the colder regions and trying to heat their houses next winter. There is too much talk about off shore drilling, etc., and when would this happen? We need public transportation - buses - stat. It's time to think outside the box Washington.....Within 6 months, I'm afraid you'll see the horrific repercussions of what's taking place now. There is not enough space in print to list our "to do" list - it's only a matter of time before people acknowledge what they're losing.

Kartik

July 3, 2008 04:27 PM

The recession began in January, so we are already 6 months in. Thus, if it lasts the typical 9 months, it would end by October.

Jim D

July 3, 2008 06:26 PM

So... the Birth Death model added HOW many jobs?

You should mention it - because without this obvious fiction, the numbers weren't just bad, they were terrible.

Rycoka

July 3, 2008 09:09 PM

I think it might be worthwhile thinking of what is happening as a transformation rather than a US recession. One possible theory is that we are seeing a fundamental shift in the international distribution of wealth, combined with some real limits being reached in terms of the availability of commodities. Globalisation has exported the developed world's productivity advantage to the rest of the world, leading to a reduction of inequality between nations. This means that people in China for instance, are becoming relatively better off, while people in the US are becoming relatively worse off. This is not really a problem so long as the term remains "relatively". However, if we have a situation where there are insufficient resources (commodities)to meet demands world wide, then we can get to the situation where people in developed countries become actually worse off. The key seems to be productivity and the key question is to what extent gains in productiviy can increase the size of the pie we are all consuming to balance out the fact that the poorer countries are now consuming more like their fair share.

LAO

July 3, 2008 09:47 PM

Architectural and engineering jobs: I cannot think of a reliable way to verify, but it is conceivable that there is enough interest in revamping existing buildings for energy savings to justify hiring of employees with the right skill set (if actually available). Having a LEED certified building appears to be somewhat of a coup these days (Leadership in Energy and Environmental Design), even better if it is a revamp.

As for the rest, I'm with you.

Viking

July 3, 2008 11:07 PM

I agree that the actual unemployment rate is likely to be much higher than the official numbers and revisions to the numbers will eventually show that.Also the point about illegal immigrants is a good one.I live in Southern California where construction began to contract about 2 years ago and then fell off a cliff 1 year ago,yet the official unemployment numbers did not rise until much later.Therefore it seems that the first to get laid off were the illegal workers,who did not show up in the official numbers,hence the delay in unemployment going up.
Unfortunately the official numbers on inflation are also understating that problem,so the "misery" index is really much worse than official numbers tell us.

me

July 4, 2008 10:57 AM

"I cannot think of a reliable way to verify, "

Here is one way. Go to the AIA billings index and if the billings are way down, they can't be hiring.

"May was the fourth straight monthly decline in billings at architecture firms. Although the slowdown moderated a bit in April, it accelerated again in May, with an ABI reading of 43.4 nationally. Any score below 50 indicates a decline in aggregate billings at U.S. architecture firms. The last time billings declined for four straight months was in late 2002/early 2003, when the nonresidential industry was mired in a steep downturn."

http://www.aia.org/aiarchitect/thisweek08/0620/0620b_otb.cfm

Joe Cushing

July 6, 2008 08:29 AM

Brandon W II

Every recession is referred to as Great Depression II on the way into it. I think we really don't know what lies on the road ahead. Remember though, the first great depression was created by a government that was desperate to try to fix the situation--or at least look like they are. It would have just been a deep recession if the government hadn't screwed everything up.

I'm confident that we are not going to have a fed that contracts money supply at the same time financial institutions are reducing the multiplier effect on money supply. Our current fed chairman literally wrote the book on that. I wouldn't put it past our legislators to do stupid stuff though. They are already talking about some of it. They are the wild card.

So if you are looking for a depression, don't look at markets or collapsing banks or industry. Look at what the government is doing. To learn more about what to look for when looking for a depression, Go here http://www.mackinac.org/article.aspx?ID=4013 and read Great Myths of the Great Depression

Brandon W

July 7, 2008 08:38 PM

Joe,
I understand what you're saying, but I genuinely believe this is different. The dollar has lost an enormous amount of value in a now-global economy. Rather than a deflationary Depression like GD-I, the Fed (Federal Reserve) is currently creating a hyperinflationary GD. In one way we do have deflation, in housing assets. In the meantime, trillions of dollars in "money on paper" is disappearing in the financial markets. Add to this rapidly growing enrgy prices. The Fed is in a no-win situation (much of it their own doing in the first place), being pulled in two directions. The upshot is this:
If the Fed does what is necessary to fend off a complete collapse of the financial system and deal with the heavy deflation of housing assets it will create hyperinflation that will destroy the remaining value of the dollar and send us into a hyperinflationary Depression.
If the Fed hikes rates enough to restore value to the dollar and fend off hyperinflation, it will collapse the financial system and deflation will collapse real estate, taking everything down with it into a "traditional" Depression.
Right now the Fed is opting for the first scenario because Bernanke will do everything to avoid a deflationary Depression. What about the middle road? Then all bets are off, and we probably head into a financial collapse, hyperinflation that devalues all our assets and savings (and of course ruins the standard of living), while also leaving real estate in a slow, agonizing deflationary cycle.

Nope, I don't see a way out of it. The details may be different, but an economic Depression is right around the corner, whichever way the Fed decides to turn at the intersection.

LAO

July 7, 2008 09:50 PM

@Me - Thanks for the American Institute of Architects info -- it pretty much settles that I was pulled into the wishful thinking that the BLS numbers appear designed to inspire.

Lord

July 7, 2008 11:30 PM

Petroleum engineers?

Dominic

July 8, 2008 12:22 PM

Brandon

The Fed is taking the first option in your message because Bernanke strongly believe (and it is true) that labor has no bargaining power left to demand higher wages, a fundamental difference from the 1970s, the feared price-wages spiral, and this will tame inflation somewhat...wait a minute...we have "only" 5.5% unemployment right?? The Fed is the one that doesn't believe in goverment official statistics in the first place...but let's not digress.
The problem is that all that liquidity created is now going straight into commodities because at the moment investors have nowhere else to go to take refuge. There are no bubbles left to inflate and consumers are shot. This, on top of the ever increasing demand from the developing world, is sending prices for everything in overdrive.
So it doesn't matter if workers have no way to demand higher wages, the cost of living is rising regardless, especially for items that are not discretionary.
This is what the Fed doesn't understand...or better, they still think is the less painful route out of this mess.
Rather than create liquidity at will and wasting money in meaningless rebate checks and trying to prop up unsustainable house prices, we should heavily invest in revamping our crumbling infrastructure, working on solutions for alternative energy, wiring the entire country for real high speed internet access (our standing in that regard in pathetic compared to the most advanced Asian countries) and other initiatives.
This would create good paying real jobs, increase our productivity and create a sustainable competitive advantage in the long run.
We need a powerful catalyst to revive the economy, not trying to further beat the dead horse of overconsumption. If we have to spend in our way out of the problem, let's spend wisely.

Keith G

July 8, 2008 01:56 PM

I am compelled by the posts here and on other blogs to comment on the 'published' unemployment rates vs. the ‘real’ unemployment rates. This issue seems to me to be a problem of definitions even though it is often said with undertones of conspiracy theory and governmental opaqueness. For example, to calculate unemployment we are forced to ask, who's in the labor force? Who's not working but wants to be? So, if you know of someone who has been looking for a job and then gives up then they come out of the calculation. Or, what about those ‘forced’ out of the labor force and into early retirement? They also come out of labor force and are possibly living below their potential than if they were working. These factors, it is reasoned, is contaminating the numbers to make things look better than they REALY are.

However, what if we just look at the number of people working and divide by the civilian non-institutional population? This calculation is less dependent on definitions. While it does not take care of the undocumented workforce (a drawback of being undocumented) it does take into account all the people in the above conditions. When you look at this data, available from the BLS at http://www.bls.gov/webapps/legacy/cpsatab1.htm, it shows that participation, although cyclical, has been increasing since 1964. We have only seen a decline of 1.4% from the all-time high of 64.4% set in 2000. I get from this that the over time there have been a significant increase in jobs available (both population and participation percentage have increased) and I get that the ‘published’ numbers are not more than .014/.63 or 2.2% off of the ‘real’ number if the entire drop from 2000 was attributed to people who still ‘wanted’ to work but weren’t counted.

Kartik

July 8, 2008 04:22 PM

The Depression talk is just fashionable gloomsterism.

World GDP growth is still expected to be 3%. That is still GROWTH.

As far as a US depression, the S&P500 is still at 1270, or the same level as 2 years ago.

Let the S&P500 drop below 1000 before we start to talk seriously about another GD.

Alejandro Rogers Bozzolo

July 8, 2008 06:09 PM

We are not even close to a depression, which is usually defined as a 10% (or more) drop in GDP.

There is debate over whether the U.S. economy is in a slowdown or a recession.

Immigration is certainly an unknown in the equation. But this immigration factor is not new, illegal immigrants have been around for the past ten years, at least. Therefore it is arguable that the employment numbers of this slowdown are comparables to those of previous contractions.

If you compare the June unemployment rate (5.5%) in absolute term, yes it is high, but it is only 0.8 percentage points higher than what it was one year ago. On the other hand, before the 2002-2003 recession, the unemployment rate increased by 1.3 percentage points. The unemployment increased was much faster during the recession.

Another indicator of a downturn would be the duration of the unemployment. Here again there is no significant evidence of a recession; unemployed Americans are finding a new job as fast as they have in the previous four years. In a recession the duration is typically higher.

Moreover, GDP growth has been positive (a recession requires with 2 consecutive quarters of negative GDP growth).

So there is uncertainty, there is some fear, but there is no recession yet.

Best,

Alejandro Rogers Bozzolo

Joe Cushing

July 9, 2008 12:01 AM

Brandon,

I see your points but I see a way out. Do nothing--and eventually business will find a way. What is scary is if the economy goes too much into the pits, government will step in and dig us deeper. One thing you have to remember is assets don't disappear.

If nobody can afford the rent in the sears tower and the landlord goes into default. The banks take it and sell it. If nobody can afford to buy it for the loan amount the bank takes a big loss. The new owner can afford to rent the tower for a lower price. New tenants move in. See assets don't go away, they just change hands. No real wealth is lost--even if there is a domino effect of losses.

Where we run into problems is when the government gets in the way of the process. If a government created depression occurs for a long time, wealth can be lost through depreciation and lack of replacement/upkeep.

Alejandro Rogers Bozzolo

July 9, 2008 10:11 AM

We are not even close to a depression, which is usually defined as a 10% (or more) drop in GDP.

There is debate over whether the U.S. economy is in a slowdown or a recession.

Immigration is certainly an unknown in the equation. But this immigration factor is not new, illegal immigrants have been around for the past ten years, at least. Therefore it is arguable that the employment numbers of this slowdown are comparables to those of previous contractions.

If you compare the June unemployment rate (5.5%) in absolute term, yes it is high, but it is only 0.8 percentage points higher than what it was one year ago. On the other hand, before the 2002-2003 recession, the unemployment rate increased by 1.3 percentage points. The unemployment increased was much faster during the recession.

Another indicator of a downturn would be the duration of the unemployment. Here again there is no significant evidence of a recession; unemployed Americans are finding a new job as fast as they have in the previous four years. In a recession the duration is typically higher.

Moreover, GDP growth has been positive (a recession requires with 2 consecutive quarters of negative GDP growth).

So there is uncertainty, there is some fear, but there is no recession yet.

Best,

Alejandro Rogers Bozzolo

Brandon W

July 9, 2008 06:32 PM

Joe,
You write, "Do nothing--and eventually business will find a way."
I don't put any more faith in businesses than I do in government. What I do believe is that people would find a way IF they were working with a true, trading market based on cooperative fulfillment of needs. What we have is a market with a fiat currency controlled by a central-planning agency. What we have is a method of wealth creation that exists substantially as numbers on paper. And what we have is a consumerist-based economy based on desire-satiation rather than genuine needs fulfillment.

"See assets don't go away, they just change hands. No real wealth is lost--even if there is a domino effect of losses."
Let me change one word there and perhaps we could agree: "No real VALUE is lost." A hard asset may continue to have functional value, but since the wealth is just numbers on paper that theoretically represent a fiat currency with no real, underlying value, asset "wealth" can disappear overnight.

cm

July 12, 2008 02:08 AM

Joe Cushing: As for assets changing hands at lower prices (and being rented out for going rate), consider that rent includes operating costs unrelated to the asset's price, and requires operating resources. There has to be some semblance of a local economy to support that.

In more general terms, one feature of economic slumps is that "market clearance" is not necessarily achieved, resulting in (possibly prolonged or even permanent) contraction of economic activity in any given market segment.

There are enough ghost towns and decrepit regions left over from economic "paradigms" that were/could not be sustained attesting to that.

To a significant extent, as is finally being publicly recognized, the US economy and lifestyle has been sustained by issuing debt, enabled (in the "bad habit" sense) by "trade partners".

Time will show whether this will continue at this scale (doubtful), and how much economic activity can be sustained going forward in a probably closer to "steady state" paradigm. (Not just in the US, but the "developed" world in general -- compare also "eurosclerosis".)

I'm not particularly looking forward to it, neither am I gloating. But I will have to live through it.

snoz

July 12, 2008 06:32 PM

I agree with Brandon. Joe Cushing is wishful thinking:"If nobody can afford the rent in the sears tower and the landlord goes into default. The banks take it and sell it. If nobody can afford to buy it for the loan amount the bank takes a big loss. The new owner can afford to rent the tower for a lower price. New tenants move in. See assets don't go away, they just change hands. No real wealth is lost--even if there is a domino effect of losses." Hogwash. People lost $billions of real wealth because of fiasco like CFC,BearnStearn, HSBC, Citigroup, CarlyleGroup, UBS, CreditSuisse, etc, etc. If you had invested $$$ in Sears Tower which then goes bankrupt, try comforting yourself with your idea that "assets don't go away, they just change hands." Brandon is right because never in the history of US finance has there been a slaughter of bank liquidity of this recent magnitude; massive nation-wide real estate foreclosure; skyrocketing crude prices. All of the above amidst a protracted two-front war abroad. Extraordinary high unemployment in construction, auto manufacturing, real estate services, and banking. Brace yourself for the most significant depression since '29.

LAO

July 12, 2008 08:17 PM

Just some general comments from the apparent pollyanna here, one who usually manages to bounce back when knocked down, complete with ridiculous frozen grin, like those inflated clown things with weighted bases.

For the last couple of years at least, those of us who read BW had all the evidence we needed to see what was coming -- average/median incomes, average/median house prices, incredibly high percentage of home ownership, level of personal debt, astounding volume of imports and empty return trips, the US dollar unnaturally married to the Chinese yuan, extreme leverage, astounding energy consumption for a nation that has abandoned most of its production -- it just didn't add up to anything good.

All that was missing was the press drawing the conclusions for us, or trying to call the timing or lead us to safety. This whole recovery has had a hollow ring to it, unless you were on Wall Streeter or maybe a beneficiary of seemingly favored status for all things health care related. I keep looking for answers to why so many corporations hoarded cash, but even though BW has tackled that once or twice, the answers give me no satisfaction.

It was only among close friends that most people would discuss the seeming impending doom, or refer one another to shadow statistics that have more credence than what the government publishes, for fear of being labeled paranoid, or worse. It has actually seemed at times that it must have been a cruel set-up to throw one term to the Democrats and give them utter disaster, but there was a failure to contain it until after the election.

I still have trouble believing my own analysis, sometimes. I see that there are still plenty of deniers among us, not to mention the bitter, but something about Michael Mandel's articles and blog entries encourage me -- they ring true more often than not.

For some reason, I keep coming back here, hoping to find a following of business thinkers who are ready to get on with the world as it is. I find BW to be among the more honest and practical business publications. If we can give Michael and BW the idea that this economy is just as ugly as he is finding it, then maybe together we can begin to gain some insight into where we go from here. It seems like, as a nation, we've done everything for the crown jewels we created, and still it's not enough. Frankly, I'm looking for what it's going to take for those who refuse to leave the country. Any takers?

eCurrencyArbitrage.com

July 13, 2008 12:03 PM

The unemployment i gradually increasing in many countries and in other side oil prices increases which effects the economy really worst.

Joe Cushing

July 13, 2008 10:22 PM

I have to clear something up for smoz. Of course people lose everything. All I'm saying is that much of what is lost by one is gained by another.

Brandon, I don't have faith in any one business but I do believe stronger ones emerge from crisis.

cm

July 14, 2008 10:24 PM

Joe Cushing: Not necessarily. For "commodity" hard assets, that may be largely so. If somebody is evicted from their dwelling, a fair chunk of their belongings usually ends up in the trash - they lose it, but nobody gains it. You may consider that chump change, but even though I could probably not sell any of my furniture or linen, nor probably even give it away, I can still quite well use it thank you very much. If I had to replace it, it would cost me some real money.

In other words, asset depreciation and utility are very much in the eye of the beholder, and most (especially personal) items are not fully fungible.

And even buildings and real estate properties may go to waste when for whatever reason the development becomes unsustainable (e.g. the local "economy" shuts down, or it turns out commutes are too long, or utilities are unavailable or too expensive).

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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