Spencer England on the Employment Situation

From: Angry Bear contributor Spencer England

The employment report was a major disappointment. Payroll employment rose some 120,000, significantly less than the over 200,000 anticipated. Moreover, the household survey displayed a -31,000 drop in employment.

The unemployment rate did tick down from 8.3% to 8.2%. But that was largely because the labor force fell -164,000




Moreover, the average work week fell from 34.6 to 34.5 hours so that the index of aggregate hours worked only rose 0.1%.


The index of hours worked has been raising a red flag about the numerous other signs of stronger employment and an acceleration of economic growth. They are not showing the recent improvement that other employment data have been reporting. Recently, unit labor cost has been rising faster than prices, implying margin pressure and very weak profits. To sustain profits growth, firms have to reestablish stronger productivity growth. The weakness in March employment is a strong indicator that business is trying to rebuild productivity growth and profits growth.


Average hourly earnings only rose from $23.34 to $23.39 so average hourly earnings continued to slow. The year over year gain is now only 1.7%, a new record low. Moreover, weekly earnings growth slowed to only 2.2%. The recent improvement in retail sales had been driven largely by a decline in consumer savings and their are serious questions about how long this could be sustained.




No wonder Bernanke is reluctant to end quantitative easing despite political pressure and Taylor rule type indicators suggesting that fed funds should be raised.


The March unemployment numbers suggest that economic growth is still stagnant despite the slight 0.1% drop in the unemployment figure. In this analysis, Spencer England from Angry Bear dives into some of the reasons why the drop in unemployment isn't necessarily something to celebrate.  He starts out by stating that the main reason for the drop in unemployment was caused by a 164,000 person drop in the labor force, and then begins to dive even further into why the numbers are highly disappointing.  One important red flag that England describes is the index of hours worked.  They are showing that labor costs have been rising faster than prices; indicating that profit margins have been steadily decreasing.  As long as employers need to increase productivity growth and profit margins unemployment will remain quite high.