US Jobs Data Puzzle

I once worked at a financial news service in Tokyo following the stock market in Japan and there were always certain bits of data that investors would watch out for.  One of these was the US non-farm payroll data which is released on the first Friday of every month and represents the number of jobs added or lost in the U.S. economy in the previous month.

This data was important to many firms not only in Japan but in much of Asia and elsewhere because strong growth in jobs would signal that consumers in the U.S. would be able to keep buying the goods these firms wanted to export to the U.S.  While American consumers are not the drivers of the global economy that they once were (which is a completely different topic on its own), I thought I would take a look at the jobs figures for October and see what insights we could gain from them.

The data shows that around 80,000 jobs were added to the U.S. economy in October which helped to nudge the unemployment rate down from 9.1% to 9.0%.  While the increase in jobs is positive, the jobs created in October are seen as insufficient in terms of making up for the jobs lost during the recession as shown by the graph (from the Financial Times website).  It is estimated that 6.6 million net jobs were lost in the U.S. during the past recession, and on top of this, that there are 100,000 new entrants to the job market every month.  As such, many economists believe that 200,000 jobs are necessary to make significant reductions in unemployment.

While a weak recovery in the U.S. economy is a major factor why unemployment remains so high, it is not the only issue.  The U.S. economy is in the midst of a massive shift of resources from the manufacturing sector to providing services such as health care, education, and business services such as those offered by lawyers and accountants.  These changes cause problems as workers have to move from sectors which are in decline to the expanding industries where the new jobs are being created but which may require completely different skills.  Therefore, some of the unemployment in the U.S. is cyclical unemployment which is caused by there being less work available.  But, there is also structural unemployment which is a mismatch between demand for certain skills from firms and the actual skills that workers have. 

The concept of structural unemployment helps explain a strange occurrence in the U.S. labour market.  A recent survey showed that the number of vacant jobs in the U.S. was 3.4 million in September which is the highest in two years.  One reason for this is that workers no longer have the skills that companies are looking for.  Another reason is to do with the housing market.  The slump in house prices means that around one quarter of all mortgage borrowers in the U.S. owe more to the bank than their house is worth.  The result being that people in this predicament are less likely to sell their home to move to take a job elsewhere.

Apart from the immediate hardships that unemployment causes, long spells of unemployment often result in skills that workers have becoming out-dated or people losing contact with the job market and not returning.  This may slow the recovery in the U.S. economy as there will not be the right type of workers for the jobs that firms want to fill and the workers will tend to be less productive than they otherwise would have been.  The problem may be all the greater due to the lack of resources provided to educate and retrain workers and could be one factor that could weaken the dominant economic position of the U.S.