Schork Oil Outlook: The REAL US Jobs Story

U.S. employment: glass half empty or half full? Depends on whether you are a Republican or a Democrat.

“…we expect to see strong job growth in Friday’s report.”

The President on the Economy at Carnegie Mellon University
June 02, 2010

Half Empty. No doubt Republicans enjoyed a hardy guffaw in light of Obama’s (lack of) prescience. Nevertheless, the president decided to double down on Friday and spin the (less than “strong”) jobs report.

It is a risky bet given tight credit markets and looming tax increases for small business owners, but it fits the pattern. To wit, this administration has acquired a nasty habit of making grand promises, then failing to deliver:

“…even with the large prototypical package, the unemployment rate in 2010Q4 is predicted to be approximately 7.0%, which is well below the approximately 8.8% that would result in the absence of a plan.”

The Job Impact of the American Recovery and Reinvestment Plan
Christina Romer and Jared Bernstein

In other words, this could be Obama’s WMD moment.

As we already know, U.S. employment increased by 431,000 in May. That was 20% below a consensus survey on Bloomberg. Worse still, the overwhelming bulk of this gain (i.e., 95.4%) was accrued through the hiring of 411,000 temporary government employees to work on Census 2010. By the fall these workers will once again be unemployed… along with a lot of recent college grads.

When you net out government temps, then Friday’s report showed a net gain of only 20,000, i.e., hardly half-glass-fullesque.

On the Household Survey the unemployment rate edged down from 9.9% to 9.7%. But then again, 286,000 unemployed reentrants exited the labor market and 25,000 fewer new entrants came in. Had they stayed and entered, the rate would have edged down to only 9.8%.

Even more worrisome is the duration of unemployment in the U.S. In May the number of long-term unemployed (those jobless for 27 weeks and over) inched up by 0.7% to a record 6.76 million. These workers account for 46% (!) of all unemployed persons.

The Schork Reportputs this in perspective: odds are 6/5 that those 453,000 workers that recently filed for first-time unemployment insurance claims will remain unemployed up through Xmas. That’s not a good thing.

Looking at employment as a percent of the population, rather than as a percent of the labor force helps smooth out noise created by the accounting of discouraged and underemployed workers. In this light, the employment-to-population ratio dropped to 58.7% last month. The ratio continues to linger down near the lowest level since April 1984. That’s not a good thing.

Half Full (Yes, There Is a Half Full)

Half Full. The numbers were not all bad on Friday. For starters, the total unemployment rate, the so-called U-6 unemployment (which accounts for total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons) dropped from 17.1 to 16.6%. However, that still means 1 in 6 workers are either out of work or under-worked, but it was an improvement nonetheless.

The number of hours worked for production workers edged up by 0.1 hour for a third straight month. Up through fourth quarter 2009 hours worked had lingered near the lowest low (since records began in 1966) at around 33.0. Over the last three months this indicator has risen to 33.5. That’s a good thing. So too is the fact that average overtime hours rose by 0.2 hours to a six-month high of 2.8.

Whereas the unemployment rate and payroll data are lagging indicators, hours worked and overtime data are coincident indicators.

Keep in mind, on initial signs of recovery firms are keen to stretch out the work week, increase overtime and call back furloughed workers before they make the commitment to increase their operating costs. Thus, if the economy is indeed improving then we would expect to see employers squeeze more from their existing resources.

The Schork Report concurs that this is a good thing. The only question now is will employer confidence now hold in the post-stimulus economy. After all, job creators (in the private sector) have to have confidence that they can get a return on new operating investments, i.e. new hires. If that confidence fades, so too shall the labor market.


Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.