Jobs, Growth, and Greece Weigh on Outlook

Jun 01 2012

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This morning’s grim Employment Situation report from the Bureau of Labor Statistics added a negative exclamation point to a week of miserable economic data that featured a downward revision to estimated GDP growth in the 1st-quarter, a jump in initial claims for unemployment insurance, and an increasingly dicey situation in Europe. Also, see our updated “Tale of Two Recoveries” graphic at the end of this email.

Employment Situation

BLS estimated that, on a seasonally adjusted basis, nonfarm payrolls rose by a meager 69,000 during the month of May with private sector payrolls adding 82,000 jobs and government payrolls shedding 13,000 jobs. The unemployment rate ticked up to 8.2% marking the 40th straight month that the official unemployment rate has been at or above 8.0% -- a post-World War II record.

Revisions to data for April and March helped mask the weakness of today’s report. Estimates of private sector payroll gains were revised downward for both months (April -43,000 to 87,000 instead of 120,000 and March -19,000 to 147,000 instead of 166,000). Last month, BLS estimated total private sector payroll employment in April at 111.020 million. Today’s estimate of private sector employment was only 20,000 higher or 111.040 million.

Interestingly, estimates of government sector payrolls were revised upwards by 13,000 in April and 8,000 in March. Today’s report showed a topline government payroll level of 21.969 million for a loss of 13,000 payroll jobs. However, after the upward adjustment to prior months, total government sector employment in May was the same as April’s initially reported estimate.

Some key points are:

• The Administration will note that private sector payrolls have increased for 27 consecutive months since hitting their low point in February 2010. Over that period, private sector payrolls have grown by 4.0% or 4.3 million. Using the White House’s chosen metric, this ranks the Obama recovery 9th out of 10 post-World War II recoveries for private sector job creation (percent increase). At a comparable point in the Reagan recovery, private sector employment had grown by 10.5%. If private sector employment had increased at the same rate during this recovery, private sector payrolls would be more than 6.9 million larger than estimated in today’s report.

• While the unemployment rate has declined from a high of 10.0% in October 2009, much of the 1.8 percentage point drop is attributable to the decline in the labor force participation which hovers around a 30 year low. Without the drop in labor force participation since the recession started, the unemployment rate would stand at 11.9%. By contrast, over the corresponding period of the Reagan recovery, the unemployment rate dropped by 3.4 percentage points AND the labor force participation rate rose instead of declined.

• Total nonfarm payrolls are 552,000 below the January 2009 level. They are 5.0 million below the January 2008 peak and 3.8 million higher than the February 2010 low point. Private sector payrolls are a mere 55,000 higher than the January 2009 level. They are 4.6 million BELOW the January 2008 peak and, as mentioned above, 4.3 million higher than the January 2010 low.

Economic Growth

Yesterday, the Bureau of Economic Analysis (BEA) released its second estimate of 1st-quarter 2012 GDP. BEA estimates that real GDP grew at an annual rate of 1.9% during the quarter revised down from its initial estimate of 2.2%. BEA will provide its third estimate of 1st-quarter GDP on June 28. The first estimate of 2nd-quarter GDP will be released on July 27 along with revised estimates dating back to 2009.

Since the recession ended in the 2nd-quarter 2009, real GDP has increased a total of 6.7% or an annualized average quarterly increase of 2.4%. This ranks the current recovery 10th out of 10 post-World War II recoveries. By contrast, at the comparable point in the Reagan recovery, real GDP had climbed a total of 17.6% for an annualized average quarterly increase of 6.1%.


The deteriorating fiscal and financial picture in Greece and much of southern Europe poses a real risk to the U.S. economy. While a Greek exit from the euro would have some negative effects on the United States, its impact would most likely be limited. However, a complete euro breakup and the reintroduction of national currencies would most likely push the United States economy back into recession. Attached is a Republican Staff Commentary titled Greek Economic Crisis: Growing Contagion Risk for U.S. Economy that discusses the current situation in Greece and the Eurozone along with potential risks for the U.S. economy.

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