I admit it: For a country that supposedly is on the verge of recession, the U.S. employment picture looks awfully good right now.
According to the Bureau of Labor Statistics (BLS), nonfarm payrolls jumped by 372,000 in June. The figure beat consensus estimates by a country mile. For example, a survey of forecasters by economic data analytics firm Econoday projected that 270,000 jobs would be added last month.
As you might imagine, there was a good deal of crowing and chest-beating at the announcement by those who’ve dismissed the idea that America is recession-bound.
“The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession,” said Andrew Hunter, senior U.S. economist at Capital Economics.
And despite a chronically high inflation rate – now an eye-popping 9.1% – the White House was all too happy to take a victory lap in the wake of the seemingly robust jobs figure.
In an official statement, President Biden said, in part:
Today, we learned that our private sector has recovered all of the jobs lost during the pandemic, and added jobs on top of that. This has been the fastest and strongest jobs recovery in American history, and it would not have been possible without the decisive action my Administration took last year to fix a broken COVID response, and pass the American Rescue Plan to get our economy back on track.
For her part, Cecilia Rouse, chair of the White House’s Council of Economic Advisers, told CNBC that “this report reflects that our labor market remains strong despite the challenges and headwinds.”
But lost among the backslapping and high-fiving are some important details of the unemployment picture that suggest all may not be quite as rosy as it seems.
Economist Peter Schiff, famous for repeatedly – and correctly – predicting the 2008 financial crisis, wondered aloud about the numbers on his podcast recently:
Despite the increase in jobs, the unemployment rate did not go down – it stayed at 3.6%. But even more interesting…the labor force participation rate not only didn’t go up with 372,000 new jobs, it actually went down. Labor force participation went from 62.3 to 62.2.
“Now, riddle me this Batman,” Schiff continued, “how is it that 372,000 jobs were created, yet the [number of] people in the labor force actually went down?”
The answer that Schiff goes on to provide is awfully interesting, in my opinion. And it’s one that could have you questioning the notion that all really is well in both the U.S. job market and underlying economy.
Let’s keep going.
According to Schiff, the answer is that most of the people who took these new jobs are people who already had jobs. In other words, says Schiff, the real drivers of this ostensibly vigorous jobs report are folks who needed to take on another job to make ends meet in an economy still plagued by the highest inflation rate in more than 40 years.
“They were already in the labor force,” Schiff said. “That’s why it [the June jobs increase] had no impact on labor force participation.”
As it happens, the evidence to support what Schiff is saying can be found deep in the BLS’s June jobs report.
The figure that attests to the increase in jobs by 372,000 comes from the BLS’s payroll survey. The payroll survey reaches out to businesses and government agencies to count the number of jobs. But there’s another kind of employment survey conducted each month by the BLS, called the household survey. The household survey counts the number of employed individuals.
As economist Stephen Moore noted in a recent Fox Business article about the jobs report, the surveys usually at least run in the same general direction – but not lately. Moore points out that since March, the payroll survey says the nation has gained more than a million jobs while the household survey indicates that there are fewer Americans working now than there were three months ago. He’s right. As a matter of fact, a check of BLS data says there are 347,000 fewer Americans working now than there were in March.
Here’s the kicker: It turns out 90% of that drop-off in employed Americans occurred last month – the same month we’re told that 372,000 jobs were created. According to the household survey, the number of individual working Americans fell by 315,000 in June.
Peter Schiff’s case that a significant number of the new jobs were claimed by those already working seems strong. A look at the June BLS numbers reveals that in virtually every sub-category of employment demographic, the number of employed individuals went down. There were fewer individual full-time workers in June than in May. There also were fewer individual part-time workers in June than in May.
There was, however, an especially marked increase in one specific category: multiple jobholders.
That’s right. While the number of individual working Americans declined in June by 315,000, the number of multiple jobholders increased by 239,000 in June.
Riddle me indeed, Batman.
Low unemployment continues to be the principal metric that the White House – and some economists, as well – hang their hats on when contending that the underlying economy actually is strong. Others such as Peter Schiff remain suspicious about employment numbers and the information they really convey.
You might recall that I wrote a piece recently detailing why an economic think tank says the real unemployment level is more than six times higher than the 3.6% figure calculated by the BLS. Lying at the heart of the think tank’s rationale is the idea that those individuals who work in jobs that do not pay a living wage should be seen as “functionally unemployed.”
Peter Schiff essentially is suggesting the same thing. “The fact that so many people who had one crappy job had to take a second crappy job in order to make ends meet because inflation is driving up the cost of living so much…this is not good news,” Schiff said during his podcast.
So, I don’t consider it a stretch to be suspicious of the idea that the economy is bolstered by an organically strong labor market. And I think that suspicion is further justified when looking at the array of recession-looking evidence at hand right now.
Last week, I made particular mention of the fact that demand for copper fell way off in the second quarter as well as that June saw a drop-off of recessionary proportions in PMI (Purchasing Managers’ Index). You may also be aware that the Michigan consumer sentiment index currently is languishing at around its lowest point in the measure’s history.
There’s other data, as well, pointing to an impending downturn. Credible rumblings suggest there’s a big jump in auto repossessions right now, including among normally reliable high-quality borrowers. And let’s not forget that a recent reading of the Federal Reserve Bank of Atlanta’s real-time GDP tracker said that when the dust settles on second-quarter GDP, it will reflect negative output. That would be the second straight quarter of negative output and meet the technical definition of a recession.
And something else – as if we needed it: With recent confirmation that the headline rate of inflation remains at a four-decade-plus high, we also have confirmation that real wage growth continues to decline. Circling back to the earlier part of our discussion, the ongoing decline in real wages speaks to Peter Schiff’s contention that “job growth,” such as it is, really is occurring in no small way on the backs of those taking on multiple jobs to stay afloat.
Interestingly, there’s no shortage of economists who see things differently, including Ian Shepherdson of Pantheon Macroeconomics.
“The jobs data support our view that talk of the economy being in recession right now is fanciful,” Shepherdson said upon the announcement of the latest employment numbers.
“Fanciful”? Mr. Shepherdson is certainly welcome to his opinion. But I’m not prepared just yet to dismiss the array of compelling evidence suggesting the economy is sinking into quicksand on the basis of the latest nonfarm payrolls. Particularly when a deeper dive into the BLS’s jobs report suggests there’s good reason to believe those numbers may be telling an incomplete – or even inaccurate – story.
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