Economic Update:  National Employment Report

06.04.2010

National Employment Report Points to Slow Growth

Just as last month’s national employment report equated to taking several steps forward, this morning’s report has the nation’s economic recovery taking a few steps backward.  The latest employment report paints a picture of slow growth for the nation’s economy.   Today’s report provides another example of why the headline number, the unemployment rate, does not provide an accurate reflection of underlying fundamentals.

On the bright side, the Bureau of Labor Statistics announced that the nation’s unemployment rate declined from 9.9% to 9.7%.   However, the decline in the rate was driven primarily by workers dropping out of the labor force, and not necessarily private sector job creation.   The household component of the report indicated that the size of the labor force declined from April to May, and the number of employed and unemployed also declined.     We can conclude the decline in the unemployment rate was due to a smaller number of unemployed as a result of workers simply dropping out of the labor force, as opposed to moving from unemployed to employed. 

The establishment component of the report was just as bad.  The consensus estimate called for the nation to add over 500,000 jobs.   The change in payrolls came in at 431,000, but the private sector was only responsible for 41,000 of this number.  Temporary census hiring accounted for 390,000. 

Source:  www.barrons.com

Construction employment was down, reflective of ongoing struggles in housing and commercial real estate.    Manufacturing and transportation and warehousing saw a positive change in payrolls.  The revival in manufacturing is now beginning to show up in the transportation sector as shipments and new orders continue to pick up.   The combination of manufacturing and transportation and warehousing numbers should be viewed favorably for Louisville Metro and the local economy.

Consumer-related sectors of retail and leisure and hospitality indicated continued weakness.  The retail sector shed over 6,000 jobs and leisure and hospitality added 2,000 jobs nationally. 

The professional and business services recorded another increase, driven by an impressive number in temporary help services.   Normally, increases in the temporary help services should be viewed favorably and is often a leading indicator of future hiring.    What we may be seeing now is an increasing reluctance among employers to make a permanent commitment to hiring.  Employers may be relying on temporary help until there is further reassurance of sustained growth.

National Employment Summary

As the nation continues an economic recovery, today’s report is another indication of the slowness of that recovery.  Weak private sector growth suggests that employers continue to show reluctance in hiring, and the unemployment numbers point to continued stresses in the labor market.   Employment stresses will continue to be a drag on the consumer and the important recovery in housing.  Any adverse reaction in the equity markets will adversely impact consumer confidence, thus providing further headwinds to the all important consumer.

Louisville Metro Employment and Unemployment

While today’s national report was quite dismal, the most recent employment report for Louisville Metro was more favorable.    The region’s unemployment rate dropped 10.7% in March to 9.9% for April. 

The rate declined occurred with a gradually expanding labor force from the previous month, but still down from last year.    The number of unemployed also declined by 5,000 from the previous month.   Compared to the same time last year, Louisville Metro still has a smaller labor force, and a higher number of unemployed.   But the last few months continue to indicate that the labor market situation in Louisville continues to show gradual improvement.  The unemployment rate last year stood at 9.5%.

The number of jobs that exist in Louisville also continues to show gradual improvement.  Year over year losses now stand at 7,000, a significant improvement from last year, and continued improvement from the start of the year.   Based on these latest metropolitan numbers, I continue to believe that the region will begin seeing positive year over year job gains in the 2nd half of the year.   Month over month, Louisville metro has recorded 2 consecutive increases in monthly payrolls.   Since February, Louisville Metro has added approximately 7,000 jobs.  

We will continue to see an improving local labor market situation.  Year over year job changes should see positive territory in the 2nd half of the year, and Louisville will continue to chip away at the original 40,000 jobs deficit that existed for the current recession.  The national report out this morning suggests that positive year over year changes for Louisville Metro might be pushed back slightly (4th quarter), 

Due to local job growth during 2010, Louisville Metro is now down 33,000 jobs since December 2007.    As jobs come back, we will continue to see an expanding labor force and the number of employed.   The expanding labor force will place upward pressures on the unemployment rate however, and we will likely not see a metro unemployment rate less than 8% for the rest of the year.   

Suggestions

If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.

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Uric Dufrene.

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in theSchool of Business at Indiana University Southeast. He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels. He previously served as dean of the School of Business.