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Employment Data: Structural Issues Remain To Complicate Outlook

 May 04, 2012 01:12 PM


(By R. Chandrasekaran) The job data announced by the Government has disappointed economists as well as market men. Though there are gains from sectors such as manufacturing, health, education and business services, there are some weakness in construction and government that resulted in smaller than predicted gains. There are also structural issues that remain and could complicate the outlook further.

In the last three months, job gains averaged 176K with the private sector witnessing 183K average jobs. In the same period, manufacturing gains averaged 31,000, while the private service sector jobs averaged 111K. Construction employment would have benefited from the seasonal factors in the initial months, and it was likely that some payback was witnessed in March and April.

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Though there seemed to have been cyclical recovery or expansion with more jobs in manufacturing as well as non-manufacturing, the recovery is below par as State and local government witnesses restructuring, economist from Wells Fargo wrote in a research note.

Importantly, income growth maintains the modest job gains thus suggesting consumer spending supports sustained economic growth. But the rate of gains remains slower compared to the previous two economic expansions, according to Wells Fargo economist. Aggregate worked hours grew 0.1 percent and 2.1 percent on a yearly basis in the last three months. In the meantime, average hourly earnings witnessed 1.8 percent year-over-year.

Meanwhile, long-term jobless and a falling participation rate remain issues. This was evident in the continued elevated level of the median duration of jobless and the lowest participation pace after 1979. The extension of jobless gains has also some influence on jobless duration. The larger the issue suggests that many labors don't have the required skill sets for employers in the location where they are seeking jobs. This also causes long spells of jobless or a withdrawal from the labor force, views Wells Fargo.

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The wider difference in jobless by education also reflects the changed state of labor demand versus the romanticized labor market of 30 years following the World War II. At that point of time, there was outsized demand for low and semi-skilled workers as a result of post-war consumer boom and limited gains from technology. This has completely diminished currently. This structural issue clearly suggests that there should be job-specific skills development. Given the current situation, the structural issues will continue to remain and could make the outlook difficult.

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