Interpreting the Job Creation Data for Job Creators

U.S. employers added 169,000 jobs last month. The unemployment rate fell to 7.3 percent from 7.4 percent the previous month. Economists had been expecting job expansion of about 170,000 to 200,000. The Washington Post scores this as a clear signal for an improving economy while The New York Times and other media are more circumspect. Both seem to ignore the fact that if the economy were to fill the jobs gap left by the recession within the next four years, around 300,000 jobs a month would need to be created, according to the Hamilton Project at the Brookings Institution. Why business leaders should take a cautious look and see what’s behind the data.

Ball State University economist Michael Hicks says the August employment situation summary contains the worst economic news this year despite 169,000 new jobs being added. “First, the estimates from the previous month was revised downwards by 40 percent, with the economy having seen 60,000 fewer jobs in July than previously reported. Earlier months were revised by more than 10,000 jobs. But, it is the August numbers which are downright scary.”

“While the top line data report of 169,000 new jobs sounds rosy the composition of new jobs is horrible,” says Hicks, director of the Center for Business and Economic Research (CBER) at Ball State. “All the new net job growth led by agricultural workers, which is a distinctly seasonal boost. Non-agricultural workers saw jobs plummet by 218,000, but even that is a mirage. Government jobs grew by 324,000. So, non-agricultural private sector employment actually declined by 542,000 jobs, but there is still more bad news, since part time employment for economic reasons grew by 156,000. So, in August, we lost 542,000 private sector, non-farm jobs, and another 156,000 turned from full to part time due to weaker economic conditions. This is a white-knuckle loss of employment opportunities for one month.

“We have to face the fact that the economy is growing slowly, while businesses shed workers at an astonishing rate. If the government and farm sectors had not added jobs, many economists would now be predicting a new recession. We should be creating more than 400,000 permanent private sectors jobs per month to ease out of this slump. Instead we just lost more than a half million.”

At this rate, it will take us at least until 2020 to bring the unemployment rate down to 5 percent. According to the Federal Reserve Bank of San Francisco, when middle class workers lose their jobs and find new ones at lower wages, over the next 25 years they’ll earn an average of 11 percent less than workers who kept their jobs. And since our so-called recovery started, almost 40 percent of new jobs have come in low-wage areas like food service, retail and clerical jobs.




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