Any way you slice or dice it, the April jobs report was terrible—and terribly disappointing. Employers added just 115,000 workers to their payrolls last month, way below the 180,000 Wall Street economists were expecting. Hiring has now slowed in three straight months. Job growth in March and April averaged 135,000, down from an average 252,000 per month in the three months to February. As IHS Global Insight explains: “Prior job gains at over 200,000 per month were inconsistent with the modest pace of recovery in overall output – GDP was up only 2.2% in the first quarter. It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs.”And JPMorgan put it this way: “The April employment report was softer than expected and signaled a downshift in labour market momentum.”
Sure, the official unemployment rate dipped a tenth of a point lower to 8.1%, but that’s only because people continue to drop out of the workforce at an alarming pace. That workforce shrinkage, as measured by the labour force participation rate, totally distorts the true unemployment picture. In fact, the participation rate is now at its lowest level since 1981! (For comparison purposes, the economy added 480,000 jobs back in April 1984, during the Reagan recovery.)
So what is the true state of the labour market?
1. If the size of the U.S. labour force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.6% today—the U-3 unemployment rate would be 11.1%.
Now, this doesn’t take into account the ageing of the Baby Boomers, which should lower the participation due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?
2. If you take into account the ageing of the Baby Boomers, the participation rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the participation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.7%.
3. Of course, the participation rate usually falls during recessions. Yet even if you discount for that and the ageing issue, the real unemployment rate would be 9.3%.
4. If the participation rate just stayed where it was last month, the unemployment rate would have risen to 8.4%.
5. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labour market’s health, is still a sky-high 14.5%.
6. The employment-population ratio dipped to 58.4% vs. 61% in December 2008. An historically and alarmingly low level of the U.S. population is actually working.
7. And given that real disposable income has been flat the past two years, it stands to reason that many of the jobs being created are in low-wage sectors. Indeed, hiring in sectors such as retail and leisure has accounted for a whopping 40 per cent of the jobs added over the past two years.
The labour market remains in sad shape—despite Obama White House claims that it’s “continuing to heal”—and it is unlikely to improve much if the economy continues to grow around 2% or so.
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