WHY DOES THE MAY “JOBS REPORT” APPEAR TO BE SO INCONSISTENT?

Today, the U. S. Department of Labor reported that the economy only added 39.000 jobs in May, while it reduced the combined total of New Hires, in March and April, by a combined total of 59,000 jobs. At the same time, DOL reported a drop in the Unemployment Rate, from 5.0% to 4.7%, and an increase in private-sector hourly wages of 3.2%.

The lower Labor Participation Rate is believed to have caused the reduction in new jobs, at a time when the overall Unemployment Rated dropped.  At the same time, average hourly private sector wages rose by 3.2%. Two possible reasons for the decline in labor participation could be: Older employees, frustrated with their current job, or having trouble finding new ones, might have decided to stop looking–and retire. Additionally, people who had previously worked just to have health benefits, now probably have access to health insurance under the Affordable Care Act (Obamacare).  And don’t forget workers who have been displaced by advances in technology.

Most labor economists recommend focusing on longer-term trends in labor statistics, rather than any one or two months.  The Verizon strike, with 38,000 workers out (now settled), is just one factor that might have skewed the numbers away from reality. Seasonality and extraordinary weather conditions can also have an impact on employment statistics.  And the global economic stagnation, which currently pervades much of the industrialized world, certainly might be a factor, as well.

The U. S. stock markets were down somewhat today, but not by a great margin.  Right now, the financial markets seem to be primarily focused on two events, both of which will occur this month.  The first, which is of lesser importance, will be the next meeting of the Federal Open Market Committee on June 14-15.  The FOMC, which manages the Fed’s monetary policy, is currently expected to delay any interest rate hike for the near future.

The second event will be of much greater importance.  On June 24, there will be a National Referendum, to decide whether, or not, the United Kingdom should leave the European Union—the so-called “Brexit”.  Here’s why that vote concerns me.

The E. U. represents 23.7% of the total Global Gross Domestic Product—more than the   U. S, and more than China.  So, if Great Britain were to leave the Union, taking 15.9% of the E. U’s total economic activity, it could weaken the entire global economic structure.  World trade might be stifled!  And, that’s how the dominoes might begin to fall.

Stay tuned!  I’m sure that I will have more to discuss on the Brexit, once we get closer to the Referendum.

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  1. #1 by Bernard Poulin on June 4, 2016 - 1:11 AM

    The exit will not mean that the 15.9% of British economic activity will disappear! This Activity will still be present, but not a part of EU numbers. The exit will not change much at all. This is just noise! The same short term noise seen and heard daily from short term pundits on television and print and the Internet.

    • #2 by cheekos on June 4, 2016 - 4:25 AM

      Mr. Poulin, perhaps you are right, but maybe not. Obviously, there is a much more emotional debate going in in the U. K. That’s something that we just don’t have to deal with, on this side of the Pond. Perhaps we could send Donald Trump over to help straighten things out.

      Yes, trade would certainly go on; but, not as easily as being a member of the trade union had been. New individual trade pacts would have to be negotiated with each of the remaining E. U. member nations.

      Over my 39 years of working in the financial services industry, I have noticed that the markets stall when dealing with uncertainty. Realizing that Iceland and Switzerland still trade with E. U. member nations, the question remains as to whether it is still would be as easy as before. And assuming that intra-European trade would not die, how would that uncertainty be digested around the world.

      The point here is, how do we know how easily a transition might be made–both in Europe and elsewhere? Might other nations panic?

      And lastly think of the additional impact if a Brexit instigates another Independence Referendum in Scotland? Also, might either of those Referendums cause Catalonia, and perhaps other regions to seek independence within any member nations? Or, how about Austria or Greece, to seek their Exit, as well?

      When you consider the possibilities in more depth, the Brexit decision just might not be as simple as you might think.

      Thanks again for visiting my blog, and the Comment.

    • #3 by cheekos on June 4, 2016 - 4:58 PM

      Mr. Poulin, you might like to read the linked commentary from The Guardian. The writers have been checking-in with various economic experts, and they seem to range from a decline in GDP–post-Brexit–and, that is the optimistic one. The link is:
      http://www.theguardian.com/politics/2015/may/14/brexit-what-would-happen-if-britain-left-eu-european-union-referendum-uk

  2. #4 by cheekos on June 6, 2016 - 3:08 PM

    The linked column, by Professor Paul Krugman, from the NY Times, provides an economist’s (Princeton Prof. and Nobel Laureate) viewpoint. This column brings to mind the economic uncertainty, which pervaded the financial markets during the led-up to the 2008 Presidential Election. Once Obama was elected, and he announced his Financial Team, some of that uncertainty was cleared-sway. Following that, some of the economy stabilized somewhat. Perhaps we” see some of that, this time around.

    http://www.nytimes.com/2016/06/06/opinion/a-pause-that-distresses.html?ref=opinion

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