Despite Jobs Added, Unemployment Rate Stuck
The October jobs report was the best in a long time. The unemployment rate remains painfully high, but employers are starting to add jobs. The Labor Department says the private sector added 159,000 last month -- much more than expected.
A Few Thoughts on the Employment Numbers By Dr. Lacy Hunt, Hoisington Investment Mgt. Co from John Mauldin's Thoughts From the Frontline:
The October employment situation was dramatically weaker than the headline 159k increase in the payroll employment measure. The broader household employment fell 330k. The only reason that the unemployment rate held steady is that 254k dropped out of the labor force. The civilian labor force participation rate fell to a new low of 64.5%, indicating that people do not believe that jobs are available, but this serves to hold the unemployment rate down. In addition, the employment-to-population ratio fell to 58.3%, the lowest level in nearly 30 years.
The most distressing aspect of this report is that the US economy lost another 124K full-time jobs, thus bringing the five-month loss to 1.1 million in this most critical of all employment categories. In an even more significant sign, the level of full-time employment in October was at the same level that was reached originally in December 1999, almost 11 years ago (see attached chart). An economy cannot generate income growth by continuing to substitute part-time work for full-time employment.
The weakness in real income is probably lost in an environment in which the Fed is touting the gain in stock prices and consumer wealth resulting from the latest quantitative easing (QE), but QE has unintended negative consequences for real household income. Due to higher prices of energy and food commodities, QE may result in less funds for discretionary spending for consumers whose incomes are stagnant. Also, with five-year yields falling below 1%, rates on CDs and other types of short-term bank deposits will decline, also cutting into household income. At the end of the day these effects will be more powerful than any stock-price boost in consumer spending, which, as always, will be very small and slow to materialize.
Unemployment payouts push California deeper into debt
With one in every eight workers out of a job, the state is borrowing billions of dollars from the federal government to pay benefits at the rate of $40 million a day.
The debt, now at $8.6 billion, is expected to reach $10.3 billion for the year, two-thirds greater than last year. Worse, the deficit is projected to hit $13.4 billion by the end of next year and $16 billion in 2012, according to the California Employment Development Department, which runs the program.
Interest on that debt will soon start piling up, forcing the state to come up with a $362-million payment to Washington by the end of next September.
That's money that otherwise would go into the state's general fund, where it could be spent to hire new teachers, provide healthcare to children and beef up law enforcement.
Continued borrowing, meanwhile, means that employers face an automatic hike in their federal unemployment insurance taxes, pushing up annual payroll costs $21 a year for each worker.
Those costs are expected to more than double over the next five years if California continues to borrow from the federal government.
Economist: RI recovery will lag behind US
An economist says Rhode Island will lag behind the country as it recovers from the economic downturn. Moody's Analytics senior economist Andres Carbacho-Burgos told the state's top budget officials Friday that the target date is 2015 for the United States to make a "full recovery" and return to a "normal" unemployment rate of 5.5 percent.
He said the target date for a full recovery in Rhode Island is 2015 or 2016.
Carbacho-Burgos said his analysis is based on the last three months of unemployment data in Rhode Island, where the unemployment rate is 11.5 percent, according to the most recent numbers.
State of Indiana prepares to reduce unemployment benefits
The state of Indiana is preparing to curb unemployment benefits in what may become a more common occurrence as states wrestle with growing debt related to providing jobless benefits to its citizens.
Indiana owes nearly $1.9 billion to the federal government which it borrowed to pay jobless benefits.
At a news conference Thursday morning, Indiana Gov. Mitch Daniels said that cutting unemployment benefits will be a primary push in the months to come.
Daniels told reporters that he wants to raise the premiums on businesses and cut benefits for recipients, contending that it's the only way to bring the unemployment deficit under control.
Unemployment benefits, which pay a maximum of $415 a week in Indiana, could be cut by up to half, which gives rise to speculation as to the reason why Indiana has announced it will be adding armed guards to its unemployment centers.
Michigan currently owes the federal government $3.8 billion for funds it borrowed to pay unemployment benefits. The state will have to begin paying the interest on that debt — $151 million worth — next year. It's unclear how the state will afford to pay it without either raising taxes on business or cutting benefits as they are proposing in Indiana.