June 4, 2012

Dismal Jobs Report Signals Bigger Problems Ahead

Keith Hall

Former Senior Research Fellow
Summary

There wasn’t much good news in Friday’s jobs report. It showed that job growth slowed for the third straight month, falling to just 69,000 in May. April data was also revised down to a gain of just 77,000 jobs. This disappointing news continues to raise legitimate concerns about the strength of the economy in the near term. To be considered in a true recovery, we need a quarter of a million jobs each month for at least the next 12 months.

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There wasn’t much good news in Friday’s jobs report. It showed that job growth slowed for the third straight month, falling to just 69,000 in May. April data was also revised down to a gain of just 77,000 jobs. This disappointing news continues to raise legitimate concerns about the strength of the economy in the near term. To be considered in a true recovery, we need a quarter of a million jobs each month for at least the next 12 months.

Unfortunately, the labor market remains at a low point and has been there since the end of 2009. The share of the working-age population with a job remains stuck at around just 58.6 percent, and despite a slight uptick in the labor force participation rate, millions of people remain disengaged from the labor force. 

Another indication that we’re not recovering is wage growth, which continued to slow, as average hourly earnings for production and nonsupervisory workers are now increasing by just 1.4 percent over the past 12 months. This is its slowest rate of growth in more than 45 years. Wage growth lags well behind inflation, which means a decrease in purchasing power. This is also bad news for our much-needed economic growth.

One cost of the economy continuing to tread water is the elevated number of long-term unemployed at 5.4 million. This accounts for a shocking 3.5 percentage points of the 8.2 percent unemployment rate. This remains far higher than at any other time before the Great Recession.