Economics

Unemployment Trends - 2nd Quarter 2012

invcom_unemp3.gif

Unemployment has been slowly falling over the past year, despite what you might be hearing from naysayers, and currently stands at 8.3% nationally according to the U.S Bureau of Labor Statistics.  Because of the severity of the recession we suffered in 2008 and 2009 unemployment has recovered much slower than in past recessions.  This has been despite the large amount of liquidity that the Federal Reserve Bank, or the Fed, has pushed into the system.  At this point the Fed has gone about as far as it can go to stimulate job growth.  So what needs to happen next to keep the unemployment trend heading downward?

Part of the problem is the private sector has simply been unwilling to hire so far during the recovery.  They have enjoyed nice productivity gains from their current employees and have not seen the need to hire until recently.  Now, however, productivity growth is slowing and they are realizing that they cannot squeeze anymore blood out of the stone.  But even with all of these job openings, the unemployment rate is not dropping as quickly as it should. 

There has been a “structural” change in the job market meaning that there aren’t enough qualified people available and in the right places to fill specific job openings.  Pairing a worker with a job opening is much the same in principle as a couple’s matchmaking.  You aren’t simply going to marry the first person you date.  Sometimes it can take a very long time to find the “right” person. 

Only a decade ago one could get a good job in the manufacturing industry with little or no higher education required.  Now you can see in the chart below, there has been a large spike in unemployment the less education that you have.

invcom_unemp1.gif

The economy is undergoing a structural change emphasizing the need for retraining in order to go into fields with employment opportunities.

invcom_unemp2.gif

According to the above chart manufacturing jobs are scarcer, employing 40% fewer workers than 12 years ago.  During that same decade, jobs in education and health services, which generally require more education, have grown nearly 20%. 

Retraining our work force and getting them to where the jobs are is what needs to happen over the next few years.  This takes a substantial amount of time and money to complete and is one of the root causes for the slow decline in unemployment.  Many workers leaving the workforce for retraining fall into a nonparticipation category that is not counted as unemployed because they are not actively seeking employment.  Once these people complete their retraining and find a job they are not considered as coming out of the pool of unemployed.  Over time this nonparticipation pool will become smaller but will not contribute to the declining unemployment numbers.

Ultimately, it could take years more before the unemployment rate falls back to its’ pre-recession levels but when it does our workers should be much better positioned for the fields with growing employment opportunities.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of Angela Palacios and not necessarily those of RJFS or Raymond James.