Jobs Friday. The markets wait for the unpredictable BLS to publish its data. Their methodology produces a lot of monthly volatility. Their adjustment factors create too many jobs. The August 2010 BLS jobs report did not disappoint this opinion.
The above charts compare the BLS jobs numbers for private sector non-farm payrolls for good producing and service providing industries with those of ADP. ADP is telling you we are losing jobs in goods production while BLS is saying things are good.
It is no secret I favor ADP data. It is not noisy, and produced by people whose sole purpose is to cut payroll checks. According to ADP, we lost 10,000 private sector jobs in August 2010 – and I reviewed their data in ADP Jobs Report Pinpoints the Weakness is Goods Production.
The ISM Non-Manufacturing survey for August 2010 indicated jobs were declining which aligns with the ADP data. But the biggest blast against the August 2010 BLS jobs report came from the National Federation of Independent Business (NFIB) who stated in part:
Bottom line, job creation is not happening. The only source of new jobs in the private sector (excluding education and health care, sectors dominated by government) is new firms and maybe services. In August, most firms did not change employment, but for those that did, 11 percent (up one point from July) increased average employment by 2.3 employees, but 13 percent (down two points) reduced their workforces by an average of 3.5 workers. Job creation still has not crossed the 0 line in the small business sector.
It is hard to analyze the BLS data when the underlying methodology is wrong. However, here is a summary:
- Nonfarm payroll employment changed little (-54,000) in August, and the headline U-3 unemployment rate rose slightly from 9.5% to 9.6%. The U-6 all in unemployment rate increased from 16.5% to 16.7%.
- Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).
- In August, the civilian labor force participation rate (64.7%) and the employment-population ratio (58.5%) were essentially unchanged.
- Average private sector earnings increased $0.06 to $22.66.
- Average private sector workweek remained at 34.2 hours.
- The administrative and temporary help sectors increased employment from 7,099,200 to 7,109,500 MoM.
Any way we cut the BLS and ADP data, we are not creating jobs. Jobs have to grow over 150,000 per month just for population growth. Money flow analysts claim this is happening because the economy is weak. These analysts want another stimulus as GDP growth is believed to create jobs. Their new mantra is Great Depression type infrastructure projects.
My professional career was spent planning, designing and constructing some of the largest infrastructure mega-projects built in the world during the last 40 years. The projects range from complete cities (roads, airports, hospitals…) to offshore platforms to nuclear power plants.
Infrastructure construction creates GDP but not a lot of jobs. The most secondary jobs are created by nuclear power construction with the attendant component manufacturing. Highways create few secondary jobs and employ few people – the majority of the construction cost is in the procuring the right-of-way, the equipment needed to build the roads, and the materials.
If you spend $1 trillion on roads, you would be lucky to create a million temporary jobs while the construction was underway. Because roads and many other types of infrastructure can only be built in certain months, we would see huge seasonal swings in the unemployment rates.
I am not arguing whether upgrading our existing infrastructure is a good or bad idea, only that it is not a cost effective solution IF your purpose of building infrastructure is to create jobs. Recently, a senior Presidential adviser penned that building infrastructure was the way to go to create jobs. It is a misguided solution from those who only watch money flows.
But more importantly, any program you try to ramp up quickly will lack the trained workforce, an adequate sized material supply network, and the specialized equipment necessary. Ramping up takes time. Peaks in employment would be years away. Project selection takes time. Look how long the interstate highway system took to go from concept to completion.
At the beginning of the Great Depression, planners were lucky that Hoover Dam was years into planning and was shovel ready. But Americans do not build labor intensive dams anymore – the processes are more automated. Today Hoover Dam would have been built with a peak workforce of much less than 2,000. And the water turbine generators most likely would be manufactured on foreign soil as the USA has lost this capability.
In fact, infrastructure spending will leak into the global economy as many products and / or components are no longer produced on USA soil. Very few products today contain 100% USA labor content.
The road to hell is paved with good intentions. If your goal is to create PERMANENT jobs in significant numbers – do not look at infrastructure.
We are grasping at straws to solve employment. There are no good solutions short of a slow 100% review of our laws, regulations, and taxes which are restraining jobs growth. We need to fix the cause of low employment – not try to create jobs on top of a rotten foundation.
Initial unemployment claims four week moving average declined slightly in data released this week.
Summary of Other Major Economic News This week:
Overall the economic reports this week are consistent with an economy that rests inside of a depression – but still growing at a slower rate.
Pending Home Sales Fell in July 2010. The unadjusted data shows YoY sales down 20%. I would not rule out that the current level of home sales are not what we should be expecting in our new normal “recovery” recession depression. Based on pending home sales levels, we should expect August 2010 home sales levels to be similar to July’s.
Manufacturing appears stable in July 2010 with the gentle decline of backlog continuing. I continue to be concerned with backlog. Backlog reduction means you still have some more people to fire, and it raises questions about the economic direction. It is a simple fact that backlog grows in an improving economy.
According to the Institute of Supply Management (ISM), economic activity in the manufacturing sector expanded in August for the 13th consecutive month. The trend lines for new orders are showing less growth. In the case of backlog, this survey data continues to completely be contradicted by manufacturing data when it is released (which continues to show backlog decreasing). But we can assume that the rate of backlog decline is increasing – and that points to further layoffs in manufacturing.
Construction Spending Is Indicating 3Q2010 GDP Facing Larger Headwinds. GDP’s 2Q2010 weakness was in the private investment area. This new data for the first month of 3Q2010 is indicating higher GDP 3Q headwinds with spending down 1% MoM and almost 11% YoY.
Fed FOMC Meeting Minutes for August 2010 showed the Fed is blind to see future economic events, and the causes for certain present conditions are debatable. There was a clear message to Congress for Stimulus 2.0. The Fed implied they are unable to control employment using monetary policy because of the existing laws and regulations of Congress and the Presidency.
Case-Shiller home price data for June 2010 showed that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter. I forecast continued improvement in the Case Shiller index for the next several months due to the averaging methodology of the index. In 4Q2010, the index should begin to decline as pending home sales are indicating a weakening market..
Personal Income and Personal Consumption Expenditures (PCE) increased in July 2010. At this point, it is more likely income – not expenditures which are limiting economic growth. The consumer is doing his job in supporting the economy. Here the double edge sword of low interest rates is reducing income, and the poor economic conditions is restraining the mom & pop business.
ISM Non-Manufacturing Survey for August 2010 Says Economy Slowing. I focus on new orders and backlog – but employment decline came as a surprise in light of the BLS August 2010 jobs report which indicated the opposite. The trend in new orders is in a rapid decline from those who believe new orders are growing. The good news is that those seeing declines are relatively stable.
The Weekly Leading Index (WLI) from ECRI decreased slightly from -9.9 to -10.1. This is in recession territory – and the index has been negative since 04 Jun 2010. There has been no recession call from ECRI. As this is a leading indicator, we must assume that conditions six months from now will not be better than today.
Bankruptcies this Week: None