Investment Contrarians

Why Job Creation in America Is a Myth

By for Investment Contrarians |

Job Creation in America Is a MythIn President Obama’s election debates and his State of the Union address, a key part of the talk focused on getting Americans back to work. Despite what you are sometimes hearing about the improving jobs market, the reality is that jobs remain somewhat scarce.

By the time you read this, you will know what the non-farm payrolls reading is and, by all accounts, it will not be that good for the jobs market. Briefing.com estimates the creation of 185,000 new jobs in March, which would be well below the 236,000 created in February. This is not what we want to see in the jobs market. The unemployment rate is predicted by Briefing.com to nudge up to 7.8%, from the current 7.7%. Again, not great.

In my estimate, the jobs market is moving along, but not at a rate that will lower the unemployment numbers anytime soon.

The private Automatic Data Processing (ADP) Employment Change reading reported on Wednesday foreshadowed America’s fragile jobs market, as a mere 158,000 new jobs were created in March, well below the Briefing.com estimate of 200,000 and the upward revised 237,000 new jobs in February. The interesting fact was that 74,000 of the new jobs were generated by small businesses with under 50 employees, while a mere 47,000 new jobs were created by large companies with over 500 employees, according to ADP. (Source: “National Employment Trends,” Automatic Data Processing, Inc. web site, last accessed April 4, 2013.)

The March ADP reading was the lowest since 148,000 in October 2012. In fact, since March 2012, there have only been three months with over 200,000 new jobs created. Compare this to the steady 200,000 plus that occurred in 2003 to 2005. The big plus is that the ADP reading is well above its pre-recession levels when the monthly jobs losses were over 800,000.

The reality is it will take years for the U.S. jobs market to recover to the point where it’s considered healthy. Pundits believe the monthly creation of 400,000 to 500,000 new non-farm jobs is needed to lower the unemployment rate in the jobs market to the six-percent range.

But then don’t tell the workers with low-wage jobs or who are working at jobs that are well below their skill level that everything is okay, because it isn’t for them.

Some 22 million Americans are still without jobs. The official count is 12.26 million, but our readers know this is too low and fails to account for the workers who have given up looking for work in the jobs market. There’s also the high unemployment rate for the youth, especially those without a higher level of education.

And then there’s the minimum wage. President Barack Obama is taking another stab at increasing the federal minimum wage in an order to help the lowest income earners in America. The proposal to raise the minimum wage to $9.00 an hour by 2015 from the current $7.25 translates into roughly an extra $3,640 annually. The proposal also links the level of the minimum wage to the inflation rate after 2015. The idea makes sense, but higher wages would drive up the cost of goods and services and this means inflationary pressure. Of course, higher wages also mean an even less competitive labor market versus the low wages found scattered throughout the world’s emerging markets.

So if someone tells you America’s jobs market is doing fine, you know otherwise. And if this is the case, then I would be concerned about the economic recovery and would be hesitant to buy stocks that move with the economy, such as the housing sector and the buying of durable goods.

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