U.S. Labor Market At Or Near Full Employment? Rosenberg Says No

We’ll get the next US labor market report from the U.S. Bureau of Labor Statistics on Friday. On average, economists polled by Thomson Reuters expect a 4.9% unemployment rate and 162,000 jobs added during May.

Next labor market report due Friday

The last report indicated that the national unemployment rate sat at 5% in April, essentially unchanged from the previous month even though more than 160,000 non-farm jobs were added to the labor market during the month. April’s addition of 160,000 jobs missed the consensus estimate of 200,000 job. More workers are entering the workforce now accounting for the new jobs with no improvement in the unemployment rate, which makes sense since we have a fresh set of college graduates entering the workforce right now.

However, the Federal Reserve appears to see this dynamic as being about more than just new college graduates looking for jobs. Former Fed Vice Chair Alice Rivlin told Fox Business Network that the labor market is the U.S. economy’s strength right now. She explained that they’ve seen a very small increase in participation in the labor market and that “people are coming back into the labor market to look for jobs and that’s the reason why we have more employment.”

US labor market – Investors remain wary

The U.S. markets are treading carefully today ahead of this week’s pending economic reports and disappointing data on auto sales and construction spending. Also this week, OPEC and the European Central Bank are scheduled to meet.

The S&P 500 slipped 0.3% to 2,091, with seven of the ten sectors trading lower, noted MarketWatch, led by Energy and Materials, which are taking yet another hit by falling crude prices. Oil futures also declined today. The Dow Jones Industrial Average also slumped today, falling 0.4%, with the losses led by Nike and Goldman Sachs. The NASDAQ Composite was also down today, falling 0.1% to 4,941.

This week’s labor market report will include clues as to whether the Fed will raise interest rates over the summer.

Is the US labor market really at full employment?

Many economists appear to think that currently the U.S. is at or close to full employment, but Gluskin Sheff Chief Economist and Strategist David Rosenberg disagrees. In his Weekly Buffet with Dave report dated May 27, he said he was particularly struck by all the comments at Maudlin Economics’ Strategic Investment Conference that week which suggested that the U.S. labor market is actually at full employment.

He explained that if the U.S. really were at or near full employment, “the wage impulse would be far stronger.” He said there are “officially” 8 million people who are unemployed in the U.S., but he adds in the number of people who are underemployed and said this pegs the unemployment number at closer to 20 million.

Source: Gluskin Sheff

“The definition of the labour force renders the unemployment rate a meaningless statistic,” Rosenberg explains. “There are a ton of folks not in the traditional labour force who would readily take a job if offered one.”

He adds that the employment-to-population ratio remains very low, although he also notes that this is being skewed by the retiring Baby Boomer generation. However, he calls the current level “disturbingly low, at 77.7%, for those aged 25 to 54.” He explains that at the beginning of the Great Recession in 2008, this metric was at 80%, and in the month when Lehman Brothers “collapsed and changed the world” in September 2009, it sat at 78.8%.

Source: Gluskin Sheff

US labor market signals show it’s not the time to hike rates

Rosenberg goes on to describe the U.S. labor market as “anemic” and warned the Fed that now is not the time to raise interest rates, adding economic reasons not to do it to recent warnings from Wall Street about the profit recession. In fact, he said the Fed has never tightened monetary policy when the capitalization utilization rates in manufacturing and broad industry was below 78%, and this metric currently sits at 75%.

The economist also noted other economic concerns from the U.S. labor market, including the fact that the four-week average jobless claims number trending upward toward 278,500 and the Dashboard 19, used by Fed Chair Janet Yellen, has declined below zero for three consecutive months.