Monday, June 6, 2016

Good news, bad news from jobs report

Last month, I showed the above graph showing the relationship between education and unemployment to my students* and I pointed out out to them that the recent pattern of a spike in unemployment for those with less than a high school diploma along with a flattening of unemployment for high school and college graduates looked a lot like the period right during late 2006 and early 2007, a year or less out from the onset of the Great Recession in December 2007.  I then repeated my prediction that I first made in 2014, updated twice in 2015, and twice early this year of a recession beginning late this year or early next year and no later than the end of 2017.  They gasped in apprehension at the prospect.

Friday, news came that gave a little more confidence in that prediction, the May Employment Report: 38,000 Jobs, 4.7% Unemployment Rate.  The good news was that unemployment fell.  In addition to the headline rate dropping, it fell among all educational classes with Jobsanger reporting the following:
Less than HS diploma...............7.1%
HS graduate...............5.1%
Some college...............3.9%
Bachelor's degree or more...............2.4%
All of those are at record post-recession lows except for those with less than a high school diploma.  Those are still above the post-recession low of 6.8% in December 2015, which is consistent with the pattern.  Even convincing so was the low number of jobs created along with the high number of people leaving the labor force.  That looks like the kind of change in the labor market that would happen in advance of a recession.

Now, the r-word didn't pass the lips of the reporters from the Wall Street Journal in Hilsenrath: What Jobs Report Means for the Fed, but other worries certainly did.

The U.S. added only 38,000 new jobs in May, the slowest pace since September 2010. How will the report be interpreted by the Federal Reserve? WSJ's Jon Hilsenrath discusses with Tanya Rivero.
The jobs report had a lot of other outlets worried, too.  FiveThirtyEight posted Hiring Really Is Slowing Down.  Vox published The economy just got its worst job report in years.  New York Magazine connected the poor economic performance to the election in Hillary Clinton Should Be Worried About This Lousy Jobs Report.  Yes, she should, but only if it persists.  After all, she is still leading Trump and Johnson in Michigan, Trump is attacking the judge in his case while his supporters were getting beat up in San Jose, and Clinton beat up on Trump's lack of foreign policy experience, among other things.  Last week was not a good one for Trump.

The people who aren't panicking are the economic bloggers, although they aren't happy about them, either.  Bill McBride called it disappointing, but pointed out that this has happened in the middle of expansions before, then repeated his prediction of 2 million new jobs by the end of the year.  New Deal Democrat over at the Bonddad Blog described the pattern as pre-recessionary, bragged a bit that he had been calling for something like this to happen beginning a year ago, but then said to expect "more reports of 1xx,000 to come. But at the same time, it is nowhere near as negative as it has been in the past at the onset of recessions."  In his next entry, he then reassured his readers "Despite the punk jobs report, the high frequency data is almost all positive or neutral.  There are very few negatives."  I'm with him.  I don't expect a recession to hit until next year now.

*If they look familiar, it's because I posted earlier versions in 2011 and 2015.  Despite the fulminations of Greer and Kunstler, the positive relationship between education and employment still holds.

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