The Unemployment Rate Falls But On a Soft Patch for the Economy
By Rom Badilla, CFA and TJ Kim,
September 07, 2012
Contrary to the job data released earlier this month, today’s key data show weak job growth which signals that the U.S. economy may be hitting a soft patch. According to the Bureau of Labor Statistics, Non-Farm Payrolls increased by a tepid 96,000 workers in August. This follows a July figure of 141,000 which was revised down from an initial report of 163,000 people. This month’s most recent data release disappointed market expectations, marking below the market survey estimate of 130,000 payroll increase.
While Non-Farm Payrolls disappointed which signals sub-par employment growth, the Household survey which is released also by the BLS, showed that the Unemployment Rate declined 0.2% to 8.1%. While on the surface this contradicts the Non-Farm Payrolls print, the fact is that the details behind the headline are quite negative for the jobs market and the U.S. economy.
In August, the Civilian Labor Force (LF) dropped 368,000 from the previous month to 154,646,000. The decrease in the Civilian Labor Force far exceeds the decline in the Unemployment, indicating that the headline unemployment rate should not be welcomed.
There are two ways for the Unemployment to drop. One way is that the unemployed find a job and move from the “unemployed” status to the “employed” status within the Labor Force. And the other is that the unemployed stop actively searching for a job and leave the Labor Force. Unfortunately, the latter appears to weigh more in the drop in the August’s Unemployment Rate, given that there was a heavier decline in the labor force than in the unemployment.
In addition, the Participation Rate, the percentage of people who are employed or actively searching for job, decline by 0.2% from July to 63.5%, suggesting that the decline in the Unemployment did not translate well into an increase in the Employment.
The shrinking Labor Market has been a chronic problem for both the Federal Reserve and the U.S. Economy. Hence, the labor market is still miles away from stepping onto a firm footing. More importantly, the unemployment data points out that the mere communication of keeping rates near zero has not been effective enough, increasing the likelihood for another round of Quantitative Easing at the next FOMC’s meeting.
Visit Bondsquawk on Facebook!
The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.