Unemployment Dips Slightly: What Does It Mean?
UPDATED with remarks from President Obama at 1:24 p.m.
The official U.S. unemployment rate dipped to 9.4 percent in July from 9.5 percent in June, according to numbers out this morning from the Labor Department's Bureau of Labor Statistics.
What does that mean? Does it mean the recession is over? Does it mean that unemployment will continue to shrink?
No, and probably not.
The economy remains in recession, officially, until the GDP goes positive for one quarter. And as for unemployment, even the White House -- which has been too optimistic in the past, saying unemployment would top out at 8 percent -- says the number will continue to rise, cresting at more than 10 percent.
So how should you feel about today's number?
Here at The Ticker, when we report some not-so-bad news, we like to say "it's better than a poke in the eye with a sharp stick."
We're not sure we can say that this time.
Yes, even a slight tick down in the rate can goose the stock markets -- as is happening right now -- and that means more recovery for your 401(k) and stock portfolio.
But there's little in today's jobs report that says the economy is in real recovery. Instead, it looks like the uptick was caused by "fake" money, which is to say, government spending, and not by consumer spending, exports and other "real" money and growth.
Or, as former labor secretary Robert Reich said on CNBC moments ago, "I have no reason to assume the aggregate demand is out there."
President Obama sounded a more positive note in remarks made moments ago, but cautioned: "We have a lot farther to go," adding that, "it's not a true recovery until we stop losing jobs."
Let's take a look into the report, which you can see by clicking here.
-- 247,000 jobs were lost in July, putting the number of officially unemployed at 14.5 million out of a workforce of 154.5 million. That's a better-than-average decline compared with the period from November through April, when the economy was shedding an average of 645,000 jobs per month. So that's good. However:
-- The real unemployment rate -- which we like to flog here at The Ticker -- dropped from 16.5 percent in June to 16.3 percent in July. This figure takes into account people who should be working full-time who are not: the discouraged, who have given up looking for work, people working part-time for economic reasons, the self-employed and so on. They are not counted in the official monthly unemployment number (even though the BLS notes them) because of the way the BLS computes unemployment, which is not a little controversial.
Troublingly, 2.3 million people in July were "marginally attached to the labor force," the official term for what we described above, which is 709,000 more than a year ago.
Among that 2.3 million, discouraged workers made up 796,000, up from 335,000 this time last year.
-- Five million Americans have now been out of work for at least six months and long-term unemployment continued to rise.
-- Nearly every private sector lost jobs in July -- construction, manufacturing, retail (a worse-than-average tanking), transportation, professional and business services and financial services.
-- The semi-private health-care sector added jobs in July. It has been largely recession-proof, thanks to the aging population and -- let us not forget -- government subsidies in the form of Medicare and Medicaid.
-- The travel and leisure sector added a handful of jobs in July, but that's all seasonal and not indicative of anything other than people taking summer vacations (which, in itself, is not a bad sign).
-- The growth in this jobs report came from the government sector, which added 9,000 jobs in July, most probably directly related to the first bit of spending from the $787 billion stimulus passed earlier this year.
This is problematic for long-term growth for the same reason that the cash-for-clunkers deal is problematic for the auto industry.
Sure, cash-for-clunkers is helping dealers and ailing auto companies, and there's value in that. But the program is probably only pulling future demand forward -- meaning more cars are not being sold over the long term -- and the program is only burning down inventory. Cash-for-clunkers does not mean that more new cars are being manufactured, nor are there any downstream benefits, such as for parts makers.
This is why the White House and many economists believe the July unemployment dip to 9.4 percent is a blip and the figure will go back to rising, even after GDP turns positive and the recession ends.
Remember: In the seven U.S. recessions since 1970, unemployment continued to rise for several months after each recession ended.
Or, to put it more bluntly: What happens when the government money runs out?
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