US jobs: The current US recovery is jobless - so far. The 431,000 new jobs in May included only 41,000 in the private sector. That looks anemic, perhaps due to huge federal deficits and a steep yield curve. However it’s too early to write off job creation altogether - it normally takes more than a year after the bottom to gather steam.
The latest data appear particularly feeble after strong job growth in April. Almost all the growth in May came from an army of 411,000 temporary workers hired to process April’s census. The private sector saw very few new jobs and long-term unemployment, already much higher than in previous cycles, rose by another 47,000.
A jobless recovery is, unfortunately, plausible in the current economic environment. The federal budget deficit is far bigger in relation to the economy than in previous downturns, tending to crowd out private sector activity. Further, the continuing steep yield curve makes it profitable for banks to borrow short-term and invest in long-term Treasuries or government-guaranteed mortgage bonds.
That may be a disincentive to private sector lending and hence a brake on job growth. According to Federal Reserve data, outstanding bank commercial and industrial loans in the week to May 19 were $1.25 trillion, down 19 percent from a year earlier.
Still, it is probably too early to draw definitively gloomy conclusions. Job creation averaged 171,000 monthly in 2004 but was barely positive in 2003, after a weak recession that ended in the third quarter of 2001. Similarly, job growth didn’t hit its stride for a couple of years after the recession that bottomed in 1991. Nevertheless in earlier recessions that hit troughs in 1982, 1975, 1970 and 1958, job creation was healthy in the first full year after the bottom, averaging 207,000 jobs monthly over those four recessions.
Even though the official unemployment rate ticked lower in May, the job-related signals, especially for the long-term unemployed, still aren’t encouraging. But with the last recession having hit its nadir only about a year ago, it’s a little early to panic.