The surprising April jobs report released last Friday sent the markets higher after the US economy created more jobs that most analysts had planned last month. The upward revisions from the February and March numbers also inspired the bulls to run after a week of promises from the Fed to continue its quantitative easing program if necessary during the summer months.
With the 165,000 increase in nonfarm payrolls in April, unemployment has declined from 9.0% to 7.5% in the past 24 months, and companies have created over 4.5 million jobs over the same time frame. Financial markets are pushing through all-time highs as the S&P 500 and Dow Jones Industrial Average have returned back to 2007 levels. The headlines, our politicians and the green up arrows on stock prices lead us to believe that happy days are here again. Yet, there are a few data points in the current report that suggest otherwise.
First, the labor participation rate, or the percentage of the U.S. population that is working, slid to 63.3% from 63.6% in March. In April 2011, the rate was also at 63.3%. So even with 4.5 million new jobs being created and more people entering the workforce in the past two years, the labor participation rate is the same. To look back even further, the rate was 65.9% in October 2007 as the market hit then all-time highs. The unemployment rate was also 4.7%, a significantly different number than the 7.5% that was cheered on Friday morning.
Our economy has created on average just over 181,000 jobs per month in the past two years. At that rate, it will take until March 2022 (almost 9 years!) to return to those 2007 pre-recession levels. We have to deal with not only finding jobs for those that are still unemployed or employed part-time, but to absorb the new job seekers that enter the workforce each year.
Companies like Regal Cinemas are reducing workers’ hours to comply with the new Obamacare law. With increased government regulation, consumer skepticism, and inconsistent demand, how can companies hire at a faster pace than the 181,000 they’ve averaged for the past two years? As the equity markets push higher, seemingly ignoring certain economic data, it reminds me of the old saying, “pigs get fat, hogs get slaughtered.”