It would have been nice if we’d been correct to the minute, but we were two months early, and therefore wrong, when we wrote on March 30, If This Plays Out, Friday Will Get Ugly.
But it did play out today.
At the time, we suspected that the March jobs report, released in early April, would be a debacle. We based this on an analysis of the divergence over time between the reports issued by payroll processing company ADP and the jobs reports issued by the Bureau of Labor Statistics.
That divergence had been going on for months. Eventually it reverts to the mean. We postulated that March would be that month.
Instead, it happened two months behind schedule, so to speak, as today’s jobs report was precisely that sort of debacle.
This is what was “expected”:
The Labor Department was expected to report, according to Wall Street economists, a “moderate” gain of 158,000 jobs in May, “moderate” given that the Verizon strike kept 35,000 workers off their jobs. The “whisper number” was around 200,000 jobs.
And this is what we got:
The BLS reported that the economy had added 38,000 jobs, the lowest since September 2010. Furthermore, the April job gains of 160,000 were chopped down by 37,000 and the March job gains of 208,000 were chopped down by 22,000. Hence, with 59,000 jobs revised away, and with only 38,000 jobs “created” in May, the net total in today’s report was a net loss of 21,000 jobs. We haven’t seen that since the Financial Crisis.
“Shockingly weak,” and “In one word, ‘Ouch’” is how MarketWatch put it so elegantly.
It was ugly all around. A number of sectors, including manufacturing, shed jobs, and the labor participation rate dropped for the second month in a row, to 62.6%. Just about the only good number was the magic headline unemployment rate, which fell sharply, from 5% in April to 4.7%, the lowest since the Great Recession began, leaving some folks scratching their heads and searching for answers.
But here’s where the report really spread gloom:
The number of temporary jobs plunged by another 21,000. Temporary employment is a harbinger for future employment trends, on the way up and on the way down.
The temporary-help sector was a major – and much lamented – driver of jobs growth after the Financial Crisis. The sector began adding jobs in September 2009. It was an early sign that companies were starting to hire again but didn’t want to commit to more permanent jobs, even as the economy overall continued shedding jobs until February 2010.
From the low point in August 2009 at 1.75 million temporary jobs, the sector added 1.2 million jobs by December 2015, when it peaked at 2.94 million. But then it started shedding jobs. With May’s loss of 21,000 jobs, the sector is down 63,800 from December:
This also happened in 2007, when the temporary help sector started shedding jobs even as the overall economy was still adding jobs until right up to the official beginning of the Great Recession. And it happened in 2000, before the 2001 recession kicked it.
Staffing agencies are cutting back because companies no longer need that many workers. Total business sales in the US have been declining since mid-2014. Productivity has been crummy and getting worse. Earnings are down for the fourth quarter in a row. Companies see that demand for their products is faltering, so the expense-cutting has started. The first to go are the hapless temporary workers.
This is the reality for businesses:
The chart below shows the gaping disconnect between declining total business sales (all businesses, not just the S&P 500 companies) and total nonfarm employment. Something has to give – and it’s starting to:
The decline in temporary workers isn’t just a one-month statistical blip, but a five-month trend: the sector has become a flashing red warning sign that the labor market is skidding even deeper into trouble.
The meme that 14 million jobs have been created since the Great Recession is constantly trotted out as a sign of how the labor market has healed, but these folks forget to add a detail: since the Great Recession, the US population has grown by 16.5 million. Turns out, jobs growth was smaller than population growth!
So per capita – for each of the 323.2 million people in the US – there are now fewer jobs than at the bottom of the Great Recession.
And the US population isn’t about to stop growing, just because the growth in jobs has stalled and may soon start reversing. So this is going to make it a heck of a lot tougher for individuals out there in the job market.
There have been other warning signs. But until recently, the official labor market metrics in the US — unemployment rate, number of jobs created, weekly unemployment insurance claims, etc. — have been immune to the worsening malaise visible elsewhere.
For businesses that have to fight it out on a daily basis in the trenches, reality has begun to bite in a very serious way, especially for smaller companies. Read… US Commercial Bankruptcies Soar (despite Rosy Scenario)
By Wolf Richter