It's hard to conclude anything other than that the May jobs report was a complete and utter disaster for the economy and, perhaps, President Obama’s chances for reelection.
Employers created just 69,000 jobs last month, the Labor Department said on Friday. That’s the fewest since May of last year. Economists had been expecting nonfarm payrolls to increase by 150,000. (In fact, the result was lower than what any economist polled by Reuters had predicted.)
Moreover, companies added 49,000 fewer jobs than previously estimated in March and April. Talk about a slowdown. The average monthly gain was 226,000 in first quarter vs. an average of just 73,000 in April and May.
Oh, and the U-3 unemployment rate rose to 8.2% from 8.1%. The broader U-6 gauge, which also measures underemployment, rose to 14.8% from 14.5%. The labor force participation rate did, finally, tick up to a still-low 63.8%, lending credence to the idea that the shrinking workforce reflects discouraged workers and not just demographics. Here is a sample of Wall Street opinion:
-- JPMorgan: "The May jobs report was disappointing and demoralizing ... Given the steady deterioration in labor market performance over the course of the year, our outlook for decent growth in the middle quarters of the year is now looking shopworn."
-- Barclays Capital: 'The May employment report suggests that the labor market recovery has lost significant steam in recent months.
-- IHS Global Insight: "2012 is beginning to look horribly like 2011 – initial high hopes that the recovery was kicking into high gear, subsequently dashed."
-- Citigroup: "Signs of extraordinary and lasting weakness in U.S. labor markets have been evident since the start of the expansion ..."
And a couple of factoids that give some insight into the true strength of the labor market
1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.8% today—the U-3 unemployment rate would be 10.9%. (Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation rate due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?)
2. If you take into account the aging of the Baby Boomers, the participation rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the participation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.5%.
3. And, as the above chart shows — originally from Obama economists Christina Romer and Jared Bernstein in January 2009 –the current 8.2% unemployment rate is 2.5 percentage points above where Team Obama predicted it would be right now if Congress passed his trillion-dollar stimulus plan.
4. The median duration of unemployment rebounded to 20.1 weeks in May, and 42.8% were unemployed for longer than a half year.
5. Average hourly earnings rose just 0.1%. Coupled with a very stable overall inflation rate, real wages were likely flat in May.
The big question now: Does this report suggest the U.S economy is heading into recession, especially given the sharp slowdown in global economic activity from Europe to India to, perhaps most worrisome, China?
Consider this: Last year, the U.S. grew at just a 1.7% pace. Research from the Federal Reserve finds that that since 1947 when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time. We are firmly within the Recession Red Zone.
The political implications are clear: Another Recovery Bummer. If you punch in a mild recession into the higher regarded Fair-Yale forecasting model, Mitt Romney wins 53-47 over Obama in the two-party vote share. But given the example of Jimmy Carter, who suffered a mild recession in his 1980 reelection year, the Fair model might be underestimating the damage to Obama from a double dip.
Bottom line: If Team Obama wasn't already in a state of panic, they probably are now. And U.S. workers shouldn't be far behind.