Is fear about the future of Eurozone eating into U.S. recovery? This certainly could be the case if the recent sentiment among investors away from the stock market and into the less profitable but more stable U.S. treasuries is any indicator. But parking money in safe assets like US treasuries starves the economy of investment, leading to slower economic growth and prolonged unemployment. One thing is certain: as long as the Eurozone problems remain a source of uncertainty, recovery will remain anemic.
The latest BLS employment report reveals that the U.S. economy created only 69,000 jobs in May, far below the 150,000 consensus expectation. The unemployment rate has increased slightly to 8.2%. While the Bureau of Economic Analysis released its first quarter 2012 GDP figure of 1.9 percent actual growth rate versus the projected 2.2 percent estimate. Earnings also remain below inflation. The numbers add up to serious weakness in the economy.
Weakness in the labor market with a silver lining in manufacturing
The number of long term unemployed (those who have been looking for work for more than 26 weeks) rose from 5.1 to 5.4 million and accounted for 42.8 percent of the total unemployed. The labor force participation rate has increased by .2 percent to 63.8 percent, but the increase offsets April’s decline — the bottom line is that the rate has not changed significantly.
The labor force participation rate is significant in that it mathematically changes the unemployment rate (the more people drop out of the labor force, or stop participating, the lower the unemployment rate will be) and affects how many jobs the economy needs to produce to return to a lower unemployment rate, such as that seen before the 2008 crisis. Atlanta Fed’s neat post shows that the higher the labor force participation rate is, the more jobs per month need to be created to return to 7.5 unemployment rate by 2013. If you use this nifty calculator, to reach 7.5 percent unemployment rate a year from now, the economy needs to produce 185,321 jobs a month. To reach a more realistic target of 8 percent unemployment a year from now, we need at least 124,316 jobs a month.