Friday's US jobs data was quite dismal, with 115K jobs created (vs. 160K expected) - yet the unemployment rate once again showed a decline to 8.1%. Clearly the markets were not impressed, as equities dropped sharply (down 1.6%). Market participants simply do not trust the headline unemployment number any longer. The broader unemployment rate measure that includes "marginally attached" and part time workers (U6) was in fact unchanged. More importantly, we are continuing to see the same pattern of declining jobless claims...
|Continuing claims (Bloomberg)|
... together with declining labor participation rates, as workers leave the "official" workforce.
|Total US labor force participation (SA)|
But who exactly is dropping out of the workforce? It turns out that the largest contributors to the recent declines are not teenagers unable to get work or women who choose to stay home (as is often believed). In fact the largest drop in US labor participation is coming from men 20 years of age and older. During 2011 it looked as though this broad group's participation has stabilized. But the last couple of months showed a sharp decline.
|Labor force participation by men 20 years of age and older|
This is particularly alarming because this group tends to earn the most and a decline in their participation will lead to reduced average earnings. It therefore should not be surprising that the Bureau of Labor Statistics measurement of average hourly earnings on Friday missed expectations.
|YOY and MOM change in average hourly earnings: survey vs. actual|
The conclusion that can be drawn from this data is that not only are fewer workers in the US participating in the labor force, but it is now the higher paid group that is leaving the labor force, thus reducing the average pay per employee.