The Jobs Report Is Nonsense

by: Lawrence Fuller


- The economy supposedly created 211,000 jobs last month.

- The hospitality and leisure sectors led in job growth.

- This makes no sense considering the decline in real incomes and the negligible growth in consumer spending.
 
 
The economy supposedly created 211,000 jobs last month, yet we had near-zero growth in consumer spending during the first quarter. This headline number is what I call fake news. In a sign of what is likely to come, last month's estimate was revised significantly lower. The March payroll estimate of 98,000 was reduced to just 76,000. In fact, we have seen downward revisions between the initial and second revision of the payroll estimate for January and February of this year. This comes after we saw similar downward revisions in nine out of twelve months last year. This tells me that the rate of job growth is continuing to slow.
 
The April report claims that the hospitality and leisure sectors led the way with 55,000 new jobs created. Yet we know that the rate of growth in consumer spending on goods and services in the first quarter was negligible, as can be seen in the chart below. It was the weakest quarter of consumption growth we have seen since the recovery began in 2009. This comes as no surprise to me considering that real income has fallen on a year-over-year basis every month so far this year.
 
 
 
The jobs report shows that average hourly earnings rose 0.3%, but I am more interested in the increase in wages on an inflation-adjusted basis. In other words, I want to know if consumers have gained or lost purchasing power. We need to wait for the Consumer Price Index report for April to calculate that figure. While earnings rose month over month, we realized a decline in the growth rate to 2.5% on a year-over-year basis.

This means that real incomes probably declined for a fourth consecutive month. If consumer purchasing power is decreasing, as it has been for the past several months, then the largest segment of our economy is struggling at best. This figure is far more important than the number of jobs created.
 
Among the 55,000 new jobs created in the leisure and hospitality sectors last month, there were supposedly 21,400 in the arts, entertainment and recreation categories and 26,200 in restaurants and bars. Outside of these categories, there were an additional 7,500 created in general merchandise stores. Given the recent trend in consumption and real earnings, I find these estimates very hard to believe. One important survey of business activity supports my claim.
 
Markit's PMI report for the service sector in April showed minimal improvement from the level we saw in the first quarter. The reading for the service sector edged up to 53.0 from March's reading of 52.8, which hovers near a seven-month low. With backlogs of work in April declining for a third consecutive month, this report showed the weakest increase in employment numbers since July 2010.
 
Markit's chief economist Chris Williamson commented:
"The labor market also continued to soften. The surveys signaled a marked step-down in the pace of hiring in March, which has continued into April. The latest survey data are consistent with only around 100,000 non-farm payroll growth."
 
The jobs number is a coincident indicator of economic activity, but a poor one in my view due to the inaccuracy of the initial estimate. The revisions are more valuable, but they receive far less attention. The change in wages is even more important, but is assigned even less importance. I call into serious question the accuracy of the April report, because we are now seeing a decline in real incomes and some of the slowest rates of consumer spending growth since this expansion began. This doesn't support job growth in the most discretionary of economic categories.

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