Consider this headline from the U.S. Bureau of Labor Statistics: Unemployment rate declines to 4.7% in May; payroll employment changes little (+38,000).
Great news, right? The unemployment rate fell to just 4.7% in May, the lowest it’s been since before the financial crisis began.
But take a closer look.
The consensus was that the U.S. economy would create 160,000 jobs in May. That’s a pretty modest number—but not nearly as modest as the actual number. It turns out that the experts were off by about 420%. The U.S. economy created a meager 38,000 jobs in May.
And, by the way, the BLS also announced that the economy created 59,000 fewer jobs in March and April than previously estimated. In other words, the BLS reported a net loss of 21,000 jobs.
For perspective, consider that Amazon alone—one company—employs nearly 240,000 people. So one company has created more than six times the number of jobs created by the entire U.S. economy in the month of May.
And the numbers are undoubtedly worse than they look.
As we’ve noted in the past, the BLS employment reports are about as objective as a Donald Trump review of a Trump hotel. The widely reported unemployment rate, known as the U-3 rate, disregards people who have given up looking for work and it counts the underemployed former corporate managers who are working as Wal-Mart greeters as being fully employed.
The unemployment rate dropped because, as The Los Angeles Times reported, “458,000 workers dropped out of the labor force, the second straight large monthly decline. The percentage of working-age Americans in the labor force dropped to 62.6%, near a four-decade low.”
So nearly a half million people drop out of the labor force and the unemployment rate drops by 0.3%. Who can take the U-3 rate seriously? The U-6 unemployment rate, which actually considers unemployed people to be unemployed, is 9.7%. That’s almost comparable to a European rate. At least we’re not Greece yet—but we’re getting closer.
What conclusions can be drawn from the latest report?
Regulatory actions have consequences. The Obama Administration’s “war on coal” may be making environmentalists happy, but mining and the industries that support it lost a combined 16,000 jobs in May.
President Obama has said he wants to “bankrupt” the coal industry and it’s one promise he’s keeping. The latest layoffs are a result, in part, of the Obama administration’s announcement in January of a temporary freeze on new coal mining on federal land. In addition, the administration’s Clean Power Plan is expected to double the number of coal plant closings over the next five years.
The BLS reports that the mining industry has shed 207,000 jobs since September 2014, while for the same period employment declined by 157,000 jobs among industries that support mining. So the air may be a little cleaner, but there are 364,000 jobless Americans who probably are not too pleased about the cost.
Don’t bet on a rate increase. Before Friday’s jobs announcement, many experts were predicting that the Federal Reserve Board would hike interest rates when it meets on June 15. But the odds of a June rate hike dropped from 21% on Thursday to just 6% of Friday, according to CME Group data based on trading of fed funds futures. Before Thursday, the odds were as high as two chances out of three.
“June is off the table” for a rate hike, according to Steve Ricchiuto, chief economist at Mizuho Securities.
Experts aren’t experts. The pundits, the Fed, the media, the economists and other so-called experts have been making rosy economic forecasts for years, yet normal growth—growth at a level exceeding 3%—is always just around the corner. Unfortunately for all of us, the world is circular.
Media have almost universally followed the Fed’s story line that seven years of zero interest rate policy (ZIRP) and trillions of dollars’ worth of bond-buying have fixed the unemployment problem.
As the latest cognitive dissonance shows, it hasn’t.