Improvements in Unemployment Are Slow To Come

The most eagerly anticipated report of the week was Friday’s labor report.  Nonfarm payrolls fell by 54k in August, well ahead of the 105k drop economists were predicting.  Further allaying investors concern was the revelation that private payrolls rose by 67k, nearly 30k more than was expected.

As surprising as it might sound, the current “recovery” in employment is the strongest the U.S. has seen coming out of a recession in several decades.  Emerging from the last recession in 2001, it took almost 22 months before sustainable job growth took hold.  This time around (if we exclude the temporary impact of the Census) it was a mere six months before regular job growth became apparent. 

However, the recent recession was especially perverse, and on a sustained basis, the depth and severity of the job losses translated into a far bigger hole to dig out from.

After initially tracking in line with the median number of job losses in the 10 post war recessions, the current recession accelerated and ultimately far surpassed our previous worst experience.

There is not going to be a quick and easy resolution to this problem.  The unemployment rate is hovering near all-time highs and is expected to stay that way for a very long time.  More individuals are once again trying to find employment, causing the number of participants in the work force to jump dramatically.  

When those people are not considered to be actively seeking employment, they do not factor into the unemployment calculation.  Roughly 6mln people disappeared from the workforce during the recession and as the economy recovers, they will naturally begin looking for employment once again. 

You would be hard pressed to find someone arguing that we are currently experiencing a period of robust employment growth.  What we do know is that for the time being, the labor markets are tentatively turning the corner and our current pace of sluggish growth is likely to continue.