Under-Employment! What it means and why you should care!
As the monthly job numbers come and go, we have been hearing various new terms to describe a very complex economy. As a matter of fact, an entire new language is emerging to explain economic data that no longer tells a clear story.
It seems only recently that The Underemployed, The Disenchanted, The Down-Sized and The Disenfranchised have graced our midst. Do we simply lack able descriptors for modern joblessness or are we seeking convenient euphemisms to soften the plight of the unemployed and the “not ideally employed”?
Under-employment is one of those new intangibles … a jargo-economic phenomena. In a word, it is the plight of the over-qualified where an employee is forced to take a position beneath their skill-level, experience, and/or economic needs. It is when an MBA grad takes a job that pays far less than the cost of their six-figure degree. Or, when a mid-level manager with a decade of experience takes an entry level position, or when a college graduate drives a cab or a truck part-time just to make ends meet.
The July jobs report was considered lukewarm by most. According to payroll data and household surveys, the economy added 162,000 jobs in July recording the smallest gain in four months and well short of the 200,000 that federal economists had hoped for. And yet, the unemployment rate dipped from 7.6% to 7.4%? While this is the lowest rate of unemployment since December of 2008, the post-script says that 37,000 workers dropped out of labor force. To understand this data, we need to consider the Labor Force Participation Rate calculated by the Bureau of Labor Statistics. It currently stands at 63.4 percent, nearing a 35-year low. This means that less workers are generating less income, which places a greater burden on the remaining workers particularly in terms of tax revenues that finance basic services and fund municipal, state and federal budgets.
If all the post-scripts to the federal job reports seem foreign to you, you’re not alone. Americans now tend to take Washington data with a grain of “DC salt” and wait for the real story to emerge at a later date when things are rounded up, rounded down, or adjusted. So whether older workers are retiring early, younger workers are flocking back to school, or the jobless are simply giving up … unemployment does not appear to be coming down due to strong economic data or high-paced job growth. The macroeconomic performance of the US economy is packed with indicators that suggest a sluggish recovery and disturbing trends in the American labor force.
But it truly depends upon who you ask. While some now lament our “part-time nation” status, others celebrate our major economic strides. What matters more to investors, however, is the Fed’s reaction to the mixed signals emerging from monthly economic reports. Most analysts expect the Fed to announce that it will begin tapering the $85-billion-a-month bond buying program at its meeting next month, but the August job numbers now loom large and may become the final, deciding datapoint.
There’s no doubt that Wall Street has greatly benefited from the Fed’s actions. If they do start to taper after five years, the dial-down could take another five years. This creates a dramatic, new economic landscape where falling bond prices, rising interest rates, and a tightening money supply become real possibilities.