Economic Notes: Where’s the Beef?
6/07/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
The Bureau of Labor Statistics’ (BLS) most recent jobs report calls to mind the 1980s hamburger commercial in which a tiny patty on a giant bun prompted the question: “Where’s the beef?”
Employment jumped in May by 431,000 jobs. The largest increase in a decade was due to a surge in temporary hires by Federal and private employers.
The Census Bureau alone hired 411,000 temporary workers in May. Except for that, the monthly job count barely budged (+0.02%). And three-quarters of the private sector’s meager 41,000 gain was attributable to the temporary help sector, where employment is up 16.4% year-on-year.
Net of Census and temporary service sector hires, employment declined in May.
While one month’s data is not a trend, it highlights one. Prior to May, employment rose for four consecutive months by an average of 137,800 jobs. But, a significant share of those jobs were either temporary or part time. Better, but not good enough. (See "Mess Hall Rations.")
Job growth that consists of only 2.3% private sector jobs is big bun, puny patty.
That may explain why consumer spending stalled after several months of rising employment and incomes.
Other than temporary hires, the labor market marked time in May. The unemployment rate slipped as April’s influx of jobseekers was partially reversed and there was a slight decline in underemployment (i.e., involuntary part-time jobs).
Private hiring (sans temp services) was generally flat in May. Even the ever-expansive healthcare sector had its smallest monthly gain since July 2003. In the public sector, fiscal constraints forced cutbacks by states and localities, while Federal employment (net Census) was unchanged.
One noteworthy exception was manufacturing, where employment rose for the fifth consecutive month as new orders continued to increase. And the Institute for Supply Management reports that managers in both the manufacturing and services sectors are optimistic about future conditions.
Although construction employment retraced two prior months’ gains, construction spending rose for the second consecutive month. The increase was evenly split between residential and nonresidential activity.
Homebuilding’s bounce reflected tax credits and low mortgage rates. It is unlikely to be sustained, however, as the tax incentives have expired and rates look to rise due to the end of the Federal Reserve’s purchase of mortgage-related securities. (The turmoil in European money markets has delayed the rate rise, but only temporarily.)
The gain in spending on nonresidential construction was concentrated in public infrastructure (streets, sewers, and water systems) and private power facilities. Spending on these types of structures is likely to remain steady, but the potential for additional growth appears limited.
Future nonresidential expansion will depend, therefore, on increased spending in the commercial components (e.g., offices, retail, leisure) where, for the next couple of years, surplus space and financing constraints are likely to impede growth.
The BLS’s most recent jobs report resurrects questions about the expansion’s pace and durability in the absence of a substantial – and sustained – increase in employment.
Has the decennial headcount given employment a short-term spurt, like “Clunkers” and tax credits did for auto and housing sales? And since the bulk of the Census positions are slated to disappear by summer’s end, is it possible that the job count will be heading lower by Labor Day?
If so, the theme of this year’s Labor Day barbecues is likely to be: “Where’s the beef?”
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.