September 8, 2009

The jobless-recovery theme re-emerged on Friday with the arrival of a disappointing employment report.  The unemployment rate jumped almost half a point to 9.7 percent in August, the highest since 1983, reflecting a poor job market that will make it hard for the economy to begin a sustained recovery.

While the jobless rate rose more than expected, the economy shed a net total of 216,000 jobs, less than July's revised 276,000 and the fewest monthly losses in a year. Economists expected the unemployment rate to rise to 9.5 percent from July's 9.4 percent and job reductions to total 225,000.

By contrast, in a healthy economy, employers need to add a net total of around 125,000 jobs a month just to keep the unemployment rate stable.  This is a big-versus-small-business issue. Sort of the haves versus the have-nots.

The large companies are gradually recovering as a result of major cost-cutting, inventory reduction, and a lean-and-mean return to profitability and high productivity. So the payroll survey registered a 216,000 job loss, the smallest drop in over a year.

But let's consider the real figures: A gauge of labor market slack that measures both the officially unemployed and discouraged job seekers rose to a record 16.8 percent in August from 16.3 percent in July. The report showed about 5 million people had been unemployed for more than six months.

During the past months an increasing number of economists have warned of the growing likelihood of an US economic recovery that fails to produce job growth.   A bevy of economic reports in the past weeks have sent mixed signals as to economic strength, but overall most economists believe that the US economy has turned a corner.  Yesterdays unemployment report, however, adds to the concern that the US is looking forward to a sustained period of high unemployment and lack of job creation.

The Department of Labor (DOL) reported a rise in the adjusted non-farm unemployment rate to a 30 year high of 9.7% after the economy shed another 216,000.  However, beyond the adjusted payroll number lies a host of employment numbers that continue to raise concern. 

The adjusted payroll numbers do not include 2 groups of unemployed workers that the DOL refers to as temporary part-time workers and marginally attached workers. The DOL reported that 9.1 million Americans are currently working part-time due to economic conditions.  This group is comprised of workers who have had their hours cut from full-time status or who have been able to find full-time employment.  In addition the DOL reported that the number of marginally attached workers grew to 2.3 million.  Such marginally attached workers include individuals who are unemployed but have not sought work over the 4 weeks prior to the survey and includes some 758,000 "discouraged' workers that have simply given up.  The addition of such excluded groups caused the real unemployment rate to increase to 16.8%. 

The 16.8 percent includes those who have run out of unemployment benefits or didn't qualify for them but are working two or three six hour a week minimum wage jobs at the local fast-food resturant.

A major cause of concern for within the economy is that a pattern has developed in which the real unemployment rate continues to rise at a faster pace than the adjusted unemployment rate.  While the adjusted rate rose .3% last month, the real unemployment rate jumped .5%.  As a result, the numbers demonstrate that the unemployed are remaining unemployed as the number of marginally attached unemployed jumped to a record high which will continue to place increased strains upon social services.

The DOL also adjusted their June and July unemployment figures upward as is typical with late responses and the rush to get the report published.  In June the economy shed an additional 20,000 jobs and in July we lost 33,000 more jobs than initially reported.  

However, the household survey, which picks up small, owner-operated, LLC/S-Corp-type businesses, registered a devastating 392,000 job loss, which follows losses of 155,000 and 374,000 in the prior two months. This is the source of the unemployment-rate jump, as 466,000 newly unemployed were scored in the report.

So while the big companies are getting healthier, the smaller firms are being left in the dust. Unfortunately, small businesses provide most of the new job creation in the United States.

Veep Joe Biden is out there saying the Obama stimulus plan has saved or created 150,000 jobs in the administration’s first 100 days and another 600,000 in its second 100 days. But he sure isn’t talking about small-business jobs.

In fact, it’s hard to know what he’s talking about. Uncle Sam has borrowed $388 billion in the second quarter and is scheduled to borrow $406 billion in the third quarter and nearly $500 billion in the fourth. In order to provide $152 billion in so-called fiscal stimulus, the government is draining close to $800 billion from the private-sector savings supply -- $800 billion that will not be invested in new-business enterprises, including small businesses.

Borrowing from Peter to redistribute to Paul is not fiscal stimulus. It’s a fiscal depressant. Small businesses are having enough trouble getting their hands on credit. And now they can’t find enough capital for new start-ups. The government prospers, but the small-business sector sinks.

Then there are all the tax and regulatory threats related to health-care and energy reform. Until Mr. Obama retreats from his plan for a government takeover of the health-care sector, and a cap-and-trade program that will cripple the energy sector, the cost of hiring the new job will continue to rise.

The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don’t forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.

So while the government doles out money for transfer payments and one-time temporary tax credits, the ensuing increase in the private-sector tax-and-financing burden becomes a complete deterrent to new job creation, as well as capital formation.

We’re going to recover. Improved ISM reports for manufacturing and services, along with better profitability for big corporations, suggest we’re looking at a mild, V-shaped recovery of 3 percent. But it will be a jobless recovery.

To add fuel to the proverbial fire what we face next is a meager growth of sorts with incipient inflation pressures that will surely plague any new recovery and force the average person to hold down at least two jobs (five if neither of the first two are fulltime).

Let's see 16 hours this week at McDonald's; 21 hours at Dairy Queen, 20 at Cracker Barrel,.....

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