Thursday, October 6, 2011

Two Million Jobs likely Created In September!

The US private sector likely created approximately two million jobs in the month of September. That appears to be in stark contrast to the paltry number the government will appear to report tomorrow. That's because the media outlets omit the word "net" when they report the latest job numbers. While everyone focuses on the "net" jobs figure, the Bureau of Labor and Statistics (BLS) also issues far-less-followed reports detailing total jobs created and destroyed.

Why is this an important distinction? Because the reality is that many American businesses are strong and growing, adding to their payrolls despite the slow-growth economy. But at the same time, companies operating in industries for which demand is no longer what it used to be (e.g. home-building, financial services) have been reducing in size. By looking only at the "net" number, the entire country looks like it's standing still. But in reality, jobs are essentially being transferred from where they are not needed to where they are.

This process is a slow one, however, as many workers require re-training to join different industries. Many workers also lack the qualifications required to start work with some of America's fastest growing employers, which is why unemployment rates vary significantly by worker education levels.

On the first Friday of every month, the financial media will place great emphasis on the net jobs number that is reported for the previous month. But while the word "net" is often omitted, it is important to recognize that it is implied. In actuality, the US economy is likely producing two million jobs every month, but excess jobs in industries operating with too much capacity have to be wound down, resulting in an uninspiring "net" number. For investors and job seekers, however, there are companies out there that are growing; they just have to be found.


Dividends For The Long Run said...

Excellent point. Looking at a national economy as a simple monolithic structure as opposed to a dynamic interaction of thousands of firms and millions of workers can lead an individual to making some big time investing mistakes.

Chris of Stumptown said...

The data looks to be unsupportive of your conclusion. Shortly after the 2001 recession, the economy added eight million jobs quarterly. Gross gains topped out at seven million in this cycle, and even this high point is lower than the lowest low in the prior seven and three quarters years. This is before taking into account that the labor force is larger due to a decade of population growth.

What the data points to is a private sector that is far less dynamic than a decade prior.

Saj Karsan said...

Hi Chris,

Which conclusion are you referring to?