Unemployment: A Deep Look at July Jobs in Perspective

A worse-than-expected 0K jobs number left the unemployment rate unchanged at 9.1%. The briefing.com consensus was for 70K new jobs. Today’s grim report included a downward revision of July’s new jobs from 117K to 85K and June’s new jobs from 46,000 to 20,000.

Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.

The unemployment peak for the current cycle was 10.2% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the current and previous bear markets.

The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The July number is 4.0% — down from June’s 4.1%. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric is significantly higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

The next chart is an overlay of the unemployment rate and the employment-to-population ratio (age 16 and over).

The inverse correlation between the two series is obvious. We can also see the accelerating growth of two-income households in the early 1980’s. The July ratio is a modern low of 58.1% — a level not seen since the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans.

The employment-population ratio will be interesting to watch going forward. The first wave of Boomers will be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the Boomer transition to the retirement will accelerate over the next several years.

What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift — the result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment continues to rise. It has approached a level nearly double the peak in 1983 following the 1981-82 recession.

The start date of 1948 was determined by the earliest monthly unemployment figures collected by the Bureau of Labor Statistics. The best source for the historic data is the Federal Reserve Bank of St. Louis.

Doug Short Ph.d is the author of dshort.com.