A Sobering Review of the Summer Job Boom

The months leading into the summer were abysmal in terms of job growth. June surprised economists and reversed the trend by adding more than 280,000 jobs. The boom continued through August, and the total job growth of the season averaged 192,000 jobs per month.

On top of that, wages and workweeks have slowly and inexorably climbed higher each month. With unemployment sitting at or just below five percent, these preliminary numbers are very encouraging and suggest that the economic recovery is slow but sustainable. Unfortunately, these numbers are misleading.

Job Growth

The first sobering comparison comes from year-over-year job growth. In 2015, the average monthly growth for the entire year was 229,000 jobs per month. When you consider the active American workforce is over 200 million, this number quickly becomes less impressive.

Even more underwhelming, the trend reversing success of the summer still only saw an increase of 192,000 jobs per month. The best part of this year is almost 20 percent less than the overall average from last year.

There is another key number that further negates the upbeat narrative of summer jobs. Total employment has remained largely unchanged since May. With more than 600,000 new jobs since the start of the summer, employment has changed by less than a tenth of a percentage point.

How is this possible?

Part of it comes from the previously mentioned size of the workforce. The other part comes from the often criticized methodologies that the Department of Labor uses to seasonally adjust numbers.

Many outliers and statistics are completely ignored when calculating job growth and unemployment, so the headline numbers are frequently a poor reflection of the actual situation. Labor force participation is usually cited as a better number, and it is what has seen little change in the last four months. Frustratingly, this still isn’t the biggest problem.

Hours Worked

You read above that the average work week has expanded each month. This number, like many others, is tricky. It only applies to full time employment. Among non-government full time work, the average workweek is now a few tenths of an hour longer than at the start of the summer.

What this utterly neglects is jobs that transitioned from full time to part time. This transition has averaged a total of 160,000 jobs per month. On top of this, a significant portion of the 192,000 new jobs each month are part time. This is highlighted by the large growth of retail and service jobs over the summer.

When you combine these numbers, you see that full time employment has actually dropped. The growth of professional-grade jobs has averaged close to 67,000 per month, which is significantly less than the 160,000 downgraded jobs each month. This is one of the key figures that has kept economists negative despite the apparent good news.

There is still more bad news. Even as overall employment is rising, if slowly, minority employment has dropped over these months. Hispanic unemployment rose dramatically, now sitting at 6.4 percent. Black unemployment changed more slowly, but is still up to 8.3 percent after almost dropping below 8 earlier in the year. Other minority employment has been relatively unchanged.

What It Means

After digesting so many numbers, it’s important to try and derive useful meaning from all of it. There are a few facts that are easy to discern. The first is why interest rates weren’t hiked.

Economic growth has not been as positive under proper scrutiny, and a fed hike could have been more devastating than many first glances might have thought. More than that, a fed hike would also dramatically increase the President Obama’s already record-setting deficit spending—something we’re sure he told Fed Chairwoman Janet Yellen not to allow.

It may be more important to consider why part time employment is trending so dramatically. The biggest reason is President Obama’s healthcare mandate—the Affordable Healthcare Act.

It represents the biggest change to sustainable full time employment that has been seen since the recession first hit, and it is now much clearer why recovery has been slow. Small and medium businesses can’t afford the mandatory benefits requirements, and they have downgraded millions of jobs to part time to compensate.

Another easy finger points in the direction of minimum wage. Despite the lack of a federal hike, millions of workers have seen wage increases instituted by state and local governments. The results across the nation have been a reduction in hours. This is never a surprising response to artificial wage increases, but it demonstrates that more of the country has been impacted than most studies can reveal.

In the end, the number of people working is slowly increasing, but the number of hours being worked is not. When you add the further complication of burdening business owners with massive rises in healthcare costs and mandates, you get a job market that is simply not ready to take on additional economic burdens.

Regards,

Ethan Warrick
Editor
Wealth Authority


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