June 2010 Unemployment 125,000 Shed

The US continues to face challenges in its labor markets.

125,000 jobs were cut. While the private sector added a less than robust 83,000 jobs. Consensus estimate were for the creation of 110,000 jobs in the private sector.

Over 652,000 people left the labor force.

Average work week hours also declined, from 34.2 to 34.1 hours worked.

The economy continues to experience significant headwinds with cuts from the delayed decision of extended unemployment benefits, to the possible future austerity measures that the US may follow the rest of the world. Time will tell if there will be another jobs bill to stimulus the sluggish recovery.

Why Paychecks Could Shrink

"High unemployment and low inflation may lead to a decline in pay—and that could slow the recovery

For now, pay is still rising—a little less than 2% for the year through June 2008, according to the government's employment cost index. But the weak job market is creating the perfect conditions for a decline in pay: low inflation and high unemployment (9.7% in August). With a huge reserve army of unemployed—more than 2 million of them college-educated—it would be easy for many employers to demand concessions.

One of Wall Street's more bearish forecasters, Goldman Sachs chief U.S. economist Jan Hatzius, predicts that average hourly earnings will fall about half a percent from the fourth quarter of 2009 through the fourth quarter of 2010. Hatzius says his prediction accounts for workers' strong aversion to wage cuts. Without that adjustment, the projection would be negative 2%." 

 Source: Business Week

What recession?

Present economic conditions in the United States from Ritholtz:

• Unemployment has risen;
• Wages continue to slide;
• Industrial production has fallen every month;
• Deflation continues to stalk many asset classes;
• Credit availability is weak, lending standards are tight;
• Capacity utilization is at a very low rate of 68%;
• Retail sales (other than gasoline price increases) are soft

As stated the economic bottom hasn't been hit, and growth has been returning although at a very sluggish rate. Credit is still tight, hence the lack of private sector growth. Government spending can temporary provide a cushion against additional downside but it can not continue its debt ridden balance sheet.

Wages will continue to be under pressure as demand has not returned to from the 2007 peak. Hence the increase in savings and tepid spending by the consumer.

No jobs, no growth

"It might take years for the labor market to fully recover as well: Most members of the Federal Open Market Committee said they expected it "to take five or six years" to bring the unemployment rate down to its long-run potential of around 5%.

Job losses have slowed, but they haven't stopped. The unemployment rate is expected to peak near 11%, according to Roubini. With a current jobless rate of 9.5%, there are now nearly six unemployed people for every job opening. For the first time since the Depression, most of those who are unemployed have lost their jobs permanently.

With so much competition for jobs, wages are dropping. The total wage bill for private industry has fallen at a nearly 5% annual rate over the past six months, the largest decline in the 50 years those data have been kept.

The only thing adding to income growth right now is government transfers, either from automatic stabilizers such as unemployment insurance or from the tax cuts in the stimulus package. Income from private sources declined in all 50 states during the first quarter.
The stimulus has now ramped up. While more money will be coming from Washington each month, the level won't increase. Economist Dean Baker of the Center for Economic and Policy Research figures we need $1 trillion in extra stimulus per year to drive the employment back to 5%, but we're getting only about a third of that.

The worst of the economic crisis is now behind us, but that doesn't mean the economy is all fixed."

Source: marketwatch.com

The Hidden Cost of Minimum Wage

"Anyone who has taken an introductory economics course is familiar with the idea that a minimum wage leads to a reduction in the demand for labor and an increase in the supply of labor in the relevant market — usually, the market for low-skill workers. The minimum wage removes the ability of some workers to compete by accepting lower wages and shuts them out of the labor force. As a result, it reduces job opportunities for these workers. A minimum wage breaks the hinges on the door of opportunity.

However, there are additional, hidden costs of these interventions, which are more difficult to detect but perhaps more insidious. For example, one effect of a minimum wage is to reduce the availability of on-the-job training, since more resources are required simply to hire and retain a workforce. And further interventions in the labor market (for example, safety regulations and payroll taxes) make it still more costly to employ labor. These burdens together reduce a firm's willingness to hire laborers and — in the long run — must reduce the number of opportunities for those laborers to acquire valuable job skills. Far from increasing opportunities for the working poor, a minimum wage actually restricts their mobility."

Source: http://mises.org/story/3478