The jobs report was a good one in many respects, however, the long-term unemployment level remained at the same level as in January at 5.5 million persons. This is a very large number and it is scary for those who have been without a job for a long time as research shows that it becomes harder and harder for the long-term unemployed to find jobs.

This was a sizable job-gain for a labor market that has been relatively weak thus far in the recovery from the Great Recession. The natural question now is: is this gain sustainable? We have seen 5 months of job-gains in excess of 100 thousand jobs per month and 2 months over 200 thousand. Is this enough data to make a new and stronger trend of job growth?

Or, is this strength, ever-so-welcome, temporary in the face of too many over-riding fundamental economic weaknesses? I remind the reader that during spring 2011 we had three months of greater-than-200 thousand job growth months starting in February that was followed by anemic job-growth from May through August.

At this point, I suspect that the strength is temporary. This is due to a large number of factors. Europe is still not out of the woods, Asia is still looking weaker rather than stronger, U.S. real estate is still weak, household-sector wealth is still down, household-sector debt is still high, personal bankruptcies are still high, and banking is still weak.

In this case, I would not mind being wrong.

For one thing, those job gains have been pretty darn small, and they haven’t been enough to drive down the unemployment rate.  Outmigration and a shrinking labor force are the reasons that California’s unemployment rate is declining.

We’ve also seen this picture before.  Almost a year ago, we commenced five months of increasing jobs, and stronger growth than we are currently seeing.  Then, the growth stopped.  We saw three out of five months with declining jobs.

This is what data looks like when an economy is bouncing along the bottom.  Long sustained periods of positive data, or negative data for that matter, just don’t happen.  We get some good data, sometimes very good.  Then some bad data comes along.  The key is not to let the good data get you too excited, nor do you want to let the bad data depress you too much.

Absent a new recession, caused by, say, the collapse of the Eurozone or an oil supply interruption, California is in for a long slow recovery.

This reality is reflected in demographic data.  Just last week, the Los Angeles Times had an article with the headline “Proportion of California’s transplant population reaches 100-year low.”  People go where the opportunity is, and unfortunately, it isn’t in California these days.

The October jobs increase was below than the revised September jobs increase of 158 thousand and below the July and August jobs increases.

Construction sector gains of 27 thousand in September were largely offset by 20 thousand in losses in October. The sector that gained the largest number of jobs was Professional and Business services with gains of 32,000 jobs. Other job-gaining sectors were Education and Healthcare, 28,000, Leisure and Hospitality, 22,000, and Retail, 18,000. Other sectors were little changed.

The long-term unemployed, i.e. those unemployed 27 weeks or more, fell from 6.2 million persons in September to 5.9 million persons in October. This is a seemingly welcome result, but it actually reflects more weakness in United States job markets. The decline is due far more to discouraged workers exiting the job market than to any underlying economic strength or job growth.

The broad measure of the unemployment rate, which includes persons marginally attached to the labor force and persons employed part time for economic reasons, fell from 16.5 percent in September to 16.2 percent in October.

Today’s jobs report indicates a labor market that still remains weak, with slow job creation and a high unemployment rate. I have argued in this blog-space that significant household sector debt reduction still needs to occur to get back to a healthy economy. Debt reduction has always been, and will always be, a long and painful process, particularly when a key asset price, housing, remains low.

Productivity used to have a cyclical component. It fell early in a recession, and it rose early in the recovery. The early-recession fall resulted from falling sales and no employment change. The idea is that businesses see the sales decline, but don’t know if it is temporary. So, they don’t layoff for a while and productivity falls.

The early-recovery productivity growth is similar. A business sees increasing sales, but is unsure if it is permanent. So, they avoid adding to payroll until they are confident that the higher sales will be maintained.

All that went away with the past two recessions. In these recessions, productivity growth was relentless, increasing quarter after quarter. Consequently, our models cannot effectively use the new productivity information. (Don’t ask why. It is a statistical answer.)

Some, very few actually, are discounting the new jobs data, because it included the Verizon strike. We note that it also included the return of Minnesota’s government workers, significantly reducing the Verizon impact.

There are other reasons to be concerned about the new jobs data. A big one is that the previous two months were revised down. June was revised down 26,000 jobs (56 percent) to only 20,000, while July was revised down a whopping 32,000 jobs (27 percent) to 85,000. These revisions imply that the initial estimate is currently biased high, implying in turn that we actually lost jobs in August.

The combination of falling productivity and job losses is a powerful indicator that the second dip may be here or coming very soon.

Downward revisions to United States gross domestic product (GDP) have driven most of the revisions. For about two years, we had trouble with the original GDP estimates. Our jobs forecasts were pretty accurate, but we forecasted productivity growth and consumer spending growth below the initial estimates. This caused us enough grief that we’ve been reviewing our models. Well, the revised numbers are entirely consistent with our original models.

Downward revisions to productivity growth and consumer spending are what drove the downward GDP revisions.

Enough bragging. What is happening to the economy? We’re seeing a weak recovery.
Increasing numbers of forecasters, spooked by weak numbers and downward revisions, are now forecasting a double-dip in the near future. We don’t think that is the most likely case.

We’ve said all along that this would be a weak and inconsistent recession, and that appears to be what we are seeing. Some encouraging data might come in this week. The next week could see weak data. This is exactly what we expect to see in a recovery where financial institutions are wounded, real estate is weak, and consumers over extended.

So, we don’t expect a double-dip recession. We expect continued slow growth, accompanied by weak real estate markets, weak consumer spending, slow job growth, and persistent high unemployment.

That would be the good news and the bad news.

Another recession is in our future though, and not just because the business cycle has not been repealed. However, the timing of the next recession is really difficult to forecast, because in part, the timing will probably be politically driven.

I have become convinced that the culmination of Europe’s problems will be a partial breakup of the Eurozone. Perhaps it will be complete breakup. It really doesn’t matter.

Any breakup will almost surely be accompanied by financial and political crises. These crises will initiate a new recession, one that will be impacting an already weakened economy. It’s likely to be very painful.

The BLS’s July Employment Situation was released today. Non-farm jobs grew by 117,000, highly focused on healthcare, (31,000), retail, (26,000), manufacturing, (24,000), and mining (9,000). Despite the increase in jobs, the measured employment level, an alternate measure of workers, decreased. That decrease was met by a larger decrease to the civilian labor force, causing the unemployment rate to fall from 9.2% to 9.1%. The unemployment rate has hovered in the 9.0 to 9.2 percent range for four months.

Government jobs continue to trend downward, (-37,000). This reflects state governments’ attempting to balance their budget and is also impacted by the partial shut-down of Minnesota’s government.

There were revisions to May and June’s non-farm jobs numbers; May’s jobs increase was revised up from +25,000 to +53,000 and June’s jobs increase was revised up from +18,000 to +46,000.

The long-term unemployment situation still has 6 million persons unemployed for 27 weeks or more, with 1 million discouraged workers, 1 million marginally employed, and 8 million persons on part-time employment due to economic reasons. This presents a clear lack of supply for jobs, a very weak job market. Many workers are choosing part time jobs rather than face unemployment. This illustrates that 10% of the civilian labor force is not the optimum or preferred employment situation.

Private non-farm job growth has been positive while public sector job losses have offset those gains for three months in a row. Companies not optimistic about a vigorous recovery have found little harm in simply waiting. State, local, and even now federal governments have all come under budget scrutiny, greatly hampering their ability to directly affect unemployment. With many of their tools and policies tied up in the banking crisis, there seem to be few initiatives on addressing the needs of the labor market.

There were revisions to April and May jobs numbers, April’s jobs increase was revised down by 15,000 (from 232 to 217 thousand) and May’s jobs increase was revised down by 24,000 (from 54,000 to 25,000).

The long-term unemployment situation remains horrible … 6 million persons have remained unemployed for 27 weeks or more! If this does not indicate a structural problem in the labor market, what does it indicate? The broad measure of the unemployment rate, (which includes underemployed and marginally attached to labor force), is just over sixteen percent!

Private non-farm job growth has been less than 100 thousand per month, while public sector job losses have offset those gains, for two months in a row. I expect this pattern to continue. State and local governments cannot really hire because they must balance their budgets or at least pretend to do so. The Federal government has come under lots of pressure to do something about their budget recently so they are not likely to boost hiring substantially in the near future.

This report obviously indicates a very weak job market. It is the second month in a row of essentially zero job growth and a rising unemployment rate. I am not bullish about the July’s report, which is due out Friday, August 5.

Non-farm jobs increased 54 thousand over April, consisting of a gain of 83 thousand in the private sector (I forecasted 240 thousand), and a 29 thousand job loss in the public sector (I forecasted a loss of 18 thousand).

What sectors drove the the slowdown? There was a 30 thousand job slowdown in manufacturing jobs, a 70 thousand slowdown in retail jobs, a 40 thousand job slowdown in leisure and hospitality, and a 20 thousand job slowdown in education and healthcare.

The decline in Retail is interesting.  The sector is experiencing a secularly growing share of online sales, which overall, will reduce the demand for workers. Also, there are technology adoptions that have yet to fully play-out. For example, self-check stations are now at major grocery stores, but they are probably not yet responsible for half the check-out volume. But, we can expect they will eventually be responsible for much more than half the check-out volume. Another thing that I worry about is that consumption growth is now under trend and could stay that way due to high consumer debt levels. These, and relatively high unemployment levels, could imply weak Retail job growth in the near term.

The other part of this jobs report contains results from the household survey, which indicates changes in labor force and unemployment. The labor force jumped substantially in May, by 272 thousand people. This was only slightly offset by a rise in 100 thousand people reporting themselves as employed. As a result, the unemployment rate rose from 9.0 to 9.1 percent, much different than my forecast of a fall in the unemployment rate.

This month’s Employment Situation highlights the fragility of the economy. Manufacturing has been one of the few bright spots in the economy since the Great Recession. If a global slowdown is taking hold as some are predicting, this will have a cooling impact on manufacturing jobs and the economy that will last beyond May.

From the April results, the broad measure of unemployment (including under-employed & marginally attached to labor force) was still 15.9 percent and there were still almost 6 million persons who had been unemployed more than 27 weeks.

The data for May comes out this Friday, June 3.

We do not think the oil price impact is huge, but overall it is a bit negative. There are positives in the Extraction sector, but those are more than offset by negatives in transport and durables manufacturing sectors.

Since February, nonfarm payrolls have increased by more than 220 thousand each month, and we forecast that about 220 thousand occured in May. This forecast reflects a slight slowing in both goods producing industries and in service producing industries. Government sector hiring will be down, dominated by declines in state and local government, which more than offset increases in hiring by Federal government.

The gap between the establishment (payroll) jobs measure and the household survey employment last month was probably an anomoly, and will be corrected at some point. I assume that correction began in May.

Regarding labor force, we project an increase of 99 thousand, a moderate increase. This follows March and April increases of 160 thousand and 15 thousand respectively. The combination of the labor force and the employed persons increase imply that the unemployment rate falls by three tenths: from 9.0 percent in April to 8.7 percent in May.

Our labor market forecast is improving, slowly. Both February and March nonfarm payrolls increased by about 200 thousand, and we are tentatively confident that about 180 thousand can occur in April. This forecast reflects a small pickup in goods producing industries and a slight slowing in service producing industries. Government sector hiring should be similar to March, which was a decline of 14 thousand jobs.

With a similar gap between the establishment (payroll) jobs measure and the household survey employment measure as occurred in March, this would give a change in employed persons of about 256 thousand.

Regarding labor force, we project an increase of 114 thousand, a moderate increase. This follows March’s increase by 160 thousand. The combination of the labor force and the employed persons increase imply that the unemployment rate falls by one tenth: from 8.8 percent in March to 8.7 percent in April.

Zooming back out to a big-picture point of view: the economy is still not firing on all cylinders. There is evidence that the economy is moving back toward all cylinders, but at a slow pace. As a result, job gains will be moderate, and the unemployment rate will remain relatively high.