What Does the Unemployment Data for June Really Say About Jobs?
On Thursday, the Bureau of Labor Statistics (aka the BLS) released the always anticipated unemployment data for June. Investors were pleasantly surprised to learn that the American economy created 288,000 jobs. Sounds great, right?
This was better-than-expected, and it is a faster job creation rate than the rate at which the population is growing. As a result, markets rose on Thursday. However, over the weekend I had a chance to look more closely at the data and I’m not sure that the market’s optimism was warranted. It seems that several other investors agree with me because we saw a pullback in the market on Monday. In fact, economically sensitive stocks such as industrials and small-caps retreated the most, while defensive stocks stood their ground. This confirms my suspicion that there are problems with the conclusion of Thursday’s rosy unemployment report.
So what was wrong with the data? Simply put, the 288,000 increase in jobs masks the fact that the jobs that were created were part-time jobs. In fact, 523,000 full-time jobs were lost! Further, 840,000 part time jobs were gained. Investors should not be surprised that this is taking place, and I expect that it will continue to take place.
The reason for this is that the new Affordable Health Care Act mandates that companies that are large enough must provide health insurance for its employees. But this only applies to full-time employees. The goal behind this legislation was to increase the number of people who have health insurance, although the actual impact was that employers decided that they were better off reducing the number of full-time employees and increasing the number of part-time employees.
What does this mean with respect to the state of the economy and the state of unemployment? First and foremost, it means that the jobs that are being created are not “quality” jobs. Part-time jobs, as we have seen, don’t come with health insurance benefits (or other benefits for that matter) and in effect, they are lower paying jobs because of this. Furthermore, part-time workers are limited in the amount of work they can do: if they work too long, then they become full-time employees and in many cases they have to be offered benefits. This further limits these worker’s salaries and their spending power. They are also forced to spend all, or nearly all of their income on necessities and they can’t put money away for retirement or for a rainy day. This latter point means that if the economy turns south, then these people will be in serious trouble.
Ultimately, more people have jobs, and on one level that’s good. But simply saying “more people have jobs” misses a dimension of the unemployment problem. It’s not enough to have a job. Rather, people need to have jobs that pay enough to sustain them, and when we see the government try to enforce this through mandates (e.g. all employed persons that work for companies of a certain size must be provided health insurance) companies simply find ways around this, and it is the employees that the government intended to help that ultimately suffer.
The bottom line is that the current employment situation isn’t horrendous, but it isn’t that great either, and you should take this into consideration when making investment decisions.