The July unemployment report is not very different from the trend in this year since January 2012. The unemployment rate has remained stable at around 8.3%.
There are as many jobs, but of doubtful quality, being created, as they are being lost.
Quarter 3 is expected to fall back to about 80,000 jobs created per month. Summer hiring season, albeit seasonal adjustment, is over. October 2012 could be the worst for jobs.
On net, after seasonal adjustment, expectations of job growth have not at all been met in 2012 thus far. Increase in manufacturing, though it created jobs, is not an accurate predictor of employment growth. Employers are holding back hiring because the economy is already operating under less than full capacity (or potential growth rate due to Fed’s excessive concern about inflation in its forecast). Export-led growth strategy by relying on economic strength elsewhere in the world, the changing external economic environment there, and moral hazard in the Federal Reserve’s structurally non-interventionist yet highly expansionary monetary policy are the three primary factors for lackluster hiring in the United States and the consequential jobless recovery.
The US economy is entering a second recession since 2007 by end-2012.
(Source: Bureau of Labor Statistics, click on the pictures to enlarge)
Note that the above charts accurately reflect our analysis of US GDP taking into account the conventional Blanchard-Summers “jobs lag recovery” story upon which economic policy is predicated at the moment.
We disagree with Blanchard-Summers in the current economic environment. We suggest that investment and jobs growth must precede economic recovery in the vein of Jean-Baptiste Say, Detroit Electric and later Henry Ford’s Model T in 1908 and the “learning by doing” argument made well known in the literature by Kenneth Arrow.
ADP payroll data based forecasts or client surveys of actual jobs created from, for example, firms such as Macroeconomic Advisers, LLC tend to be inaccurate because statistical methods are not applied to the raw numbers.
The absolute number of jobs created, after adjusting for ups and down in hiring or layoffs because of seasonal patterns such as the temporary summer and winter hiring, does not say much about employment.
The overall unemployment rate, computed by BLS using two surveys – household and establishment – is defined as those looking for work but unable to find it. It is more revealing of the underlying trends. Unemployment rate, however, does not take into consideration drop-outs from the work force, who do not show up in unemployment claims filed but are present in the household survey.
We were skeptical because of April, May and June actual jobs numbers. Our skepticism was proven correct. Less than expected job growth in April, May and June was canceled out by expected job growth in July, leaving the overall unemployment rate about the same in all of 2012 thus far, in the range of 8.1 to 8.3%.
Transformations forecast July jobs numbers linearly based on April, May and June, Quarter 2 Bureau of Labor Statistics (BLS) numbers. The BLS June number is also still preliminary. The actual preliminary number of jobs added was about double our trend forecast of 80,000 jobs in July. Moreover, the ADP reports maintained by Macroeconomic Advisers, LLC in fact, contradict Macroeconomic Advisers, LLC’s jobs number forecast and are more in line with our forecast of about 80,000 new jobs created per month.
Our forecast methodology at Transformations, LLC is based on applying circumstantial qualitative analysis (judgment) to an essentially linear regression forecast of actual history data, maintaining the same slope of the straight line looking forward. Barring shocks to economic circumstances, positive or negative, we do not expect our forecasts to be incorrect.