BackUS labour market is broken
Why do the financial markets react strongly to the US employment report?
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The first Friday of the month is a big day in the US for economic data. The employment report for the previous month is released on that day. That data point is a market mover despite it being a sample estimate subject to large sampling error. Further, it is revised several times over and by the time the final revision is done, the number is usually unrecognizable from the first estimate. Yet, financial markets react strongly to that report. On 3 May, it was no different. The labour department reported that the US non-farm economy created 165,000 jobs in April on top of upward revisions to job creation numbers in February and March. US stocks waltzed higher. The S&P 500 stock index closed above 1,600 points on Friday. In Europe, the German DAX index closed at a record 8,122 points. That was atypical response. Normally, Wall Street celebrates bad news for Main Street. I was not sure what to make of this apparent attack of good conscience on the part of Wall Street. I set about going through the employment report with a fine toothcomb. Bare Talk is pleased to share his findings with you.
Relatively unskilled, under-educated women found jobs in April and in the last 12 months
• Overall unemployment rate among whites remained unchanged in April (6.7%) from March
• Among white men (20 years and above), the unemployment rate shot up to 6.4% from 6.1% in March
• Unemployment rate among white women came down from 6.1% to 5.7% in April
• Unemployment rate among black women came down from 12.2% to 11.6%
• While Latino men (20-years and over) had it good, women had it even better. Latino male unemployment rate came down to 7.6% from 8.2% in March, but for women, the drop was more dramatic—from 9.3% to 7.5%. (non-seasonally adjusted data)
• The unemployment rate among those with a bachelor’s degree or better, actually went up from 3.8% to 3.9% in April.
• The trend in the unemployment rate in the last 12 months among various categories of educational attainment tells its own tale about the jobs that the American economy is able to create:
• “Less than a high-school diploma": down from 12.5% to 11.4%
• “High-school graduates": from 7.9% to 7.4%
• “Some college or associate degree": from 7.5% to 6.4%
• Bachelor’s degree and higher: from 4% to 3.9%
Less work, less pay
• The index of aggregate hours worked in April dropped 0.4 percentage points in April. In spite of more bodies getting jobs, the economy received lower labour input in April than in March.
• Unsurprisingly, workers earned less in April than in March. The index of aggregate weekly payrolls (workers * wages) fell 0.2% in the month
• While it is good news that the median duration of unemployment came down from 18.1 weeks to 17.5 weeks, this needs to be read in conjunction with what we have reported earlier on those who got jobs in the month of April 2013.
Quality of jobs created?
• The government sector shed 11,000 jobs in the month and the “goods producing" sector shed 9,000 jobs. Therefore, the private sector created 176,000 and private “services producing" sectors produced 185,000 jobs in the month. Where?
• Administrative and waste services: 43,300
• Healthcare and social assistance: 26,100
• Accommodation and food services: 45,100 (of which, “food services and drinking places" created 37,100 jobs)
Why did US stocks rally on Friday?
Now that we have a clearer picture of the kind of jobs that the US has generated in April—if you were a woman, had no high school degree or just completed high school and were looking for a low-wage job, then you likely landed up with one in April, according to the Bureau of Labor Statistics employment report—we know why the stock market celebrated.
The jobs report was not good news for Main Street. That being the case, this employment report was not going to persuade the Federal Reserve to abandon asset purchase. If anything, the report has strengthened the hands of those in the Federal Reserve calling for more bond purchases and not less. Even better, the employment report was good news for capitalists. They paid their workers less in March than they paid in April. Ceteris paribus, it is good news for their bottom line.
Now, we know that stock markets rallied on bad news for the Main Street, on good news for corporate bottom line and on the possibility of extension and expansion of asset purchases by the Federal Reserve.
We can sleep peacefully. We have evidence that stock markets in the US (and world over) are perfectly rational.
(PS: Will take up the sequel to last week’s column on “Rebalancing" on the financialization of the US economy in my next column).
V. Anantha Nageswaran is the co-founder of Aavishkaar Venture Fund and Takshashila Institution. Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk-
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