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Looking at Jobs Data from a Different Perspective

Every time we think that we see a glimmer of hope with respect to the employment picture in the U.S., we receive another concerning jobs report.  During the first couple of weeks in January, we have already received reports showing a decrease in the U-3 unemployment rate, an increase in nonfarm payrolls (but not by as much as the analysts were expecting) as well as an increase in the number of  weekly initial jobless claims.  Hence, while we do not believe that unemployment will get worse in 2011, we do not see enough consistent signs of hiring conviction in the private-sector to suggest to us that unemployment will noticeably improve in 2011.

Remember that the United States economy is now more service oriented than manufacturing driven and service oriented economies, which thrive on technological innovation, do not tend to have the capacity to produce large numbers of new jobs. Further, it remains to be seen if any new job creations will go to existing displaced U.S. workers.

As a result, it is entirely possible that the United States will continue to have a relatively large percentage of labor force underutilization by historical standards.   This is just another example of the severity of this most current recession as the U-3 unemployment rate stood at just 4.4% as recently as May of 2007 – near the mystical 4% rate that many academics claim is the approximate level of full employment in the U.S.

Unemployment Rate – U3

(1990-2010)

u3-unemployment2

Such difficulties in the jobs market are having an impact on income levels of Americans across the country and creating more wide-ranging income disparities.  Consider that, according to the U.S. Census Bureau as of 2009, over 44 million people, or 14.3 % of Americans, are considered living in poverty (which they define as annual income below $11,161 for an individual or below $21,756 for a typical family of four).

All of this remains a concern to us, at Hennion & Walsh, for an economic recovery that is limping along in the U.S.  With a current U-3 unemployment rate of 9.4%, which is the lowest it has been since July of 2009, and a current U-6 (a more encompassing unemployment data point) of 16.7% (this figure is actually higher than it was at the start of 2010), the prospects for economic growth fueled by gains in consumer spending would seemingly be strained.

However, this spending constraint could be offset, though, by the 90% + of Americans that are employed, have reduced their own household level of debt and are growing more confident with their own spending patterns.  Craig Johnson of Consumer Growth Partners is one analyst siding with this side of the consumer/retail spending debate as he predicted in a January 2011 Advisor Perspectives article entitled, A Bold Forecast for Consumer Spending, that consumer spending will grow between 4% – 5% over 2010 levels and not necessarily by just charging more on credit cards as we saw many individuals do leading up to the recession that being in December of 2007.

A decrease in unemployment, or, put differently, an increase in jobs created, is not as important to the U.S. economic recovery, in our opinion, as a decrease in the number of layoffs or jobless claims reported would be.    Once the 90%+ of Americans that are currently employed feel comfortable that their jobs are safe again and that the constant stream of layoffs that we have seen since 2008 has abetted, these same individuals should feel comfortable spending again.  Given that they are employed and likely have been hoarding some cash throughout this recession, this majority will likely have more to spend as well and thus have the capability to propel the economy higher.