(Written with EPI colleague Heidi Shierholz)

 While the apparent peaking of job losses in April is an important first step, the turning point that really matters is the one where the labor market starts creating enough jobs to bring the unemployment rate down. And that is still a long way off.

 The rate of job loss for the first part of the year has been staggering – 2.7 million jobs lost so far in 2009.  The April losses were indeed smaller than the first quarter, and we’re cautiously optimistic that trend will continue.  One of the reasons for caution, however, is the fact that a sizeable portion of the slowing job loss in April was due to the hiring of temporary workers in preparation for the 2010 Census; looking at the private employment alone, which excludes government hiring, we find that there were 611,000 private sector jobs lost in April.  That number, however, is still less than the 710,000 private sector jobs lost on average per month in the first quarter.  A full analysis of last month’s report is here. http://www.epi.org/publications/entry/jobspicture20090508/

 Another reason for caution is that wage growth, which had been holding up earlier in the recession, has collapsed in recent months.  For the first year of the recession, from December 2007 to December 2008, nominal average hourly wages grew 3.9%, but in April, they grew at an annualized rate of 0.7%.  Stalling wage growth will put additional downward pressure on consumption.

 Furthermore, while the pace of losses may be slowing, it is important to keep in mind that the losses are still huge and the pain on main street is deepening.  The jobless rolls increased by 563,000 in April, as the unemployment rate rose to 8.9%.  The male unemployment rate rose to 10.0% and the black unemployment rate soared to 15.0%.  Nearly one in six US workers is either unemployed or underemployed, and there are currently around 5 unemployed workers for every available job, meaning that there are literally millions of jobless workers who have little hope of finding work until the economy starts adding jobs at a healthy rate.

 These employment numbers also understate the number of people that would be impacted by an un- or under-employment spell at some point during the year. If the overall unemployment rate rises to 9.8 percent in 2010, as projected by Moody’s economy.com, the share of the labor force experiencing unemployment or underemployment over the course of the year will be about a third. And over 40% of the black and Hispanic labor force would be expected to be unemployed or underemployed at some point in 2010.

 And the problem is, that turning point – the point where the economy starts adding jobs at a healthy rate – is a long way off.   Simply to keep up with population growth, the economy must add around 127,000 jobs a month.  In other words, in order to start seeing the unemployment rate come down, we have to not just add jobs every month, we have to add a lot of jobs every month.  After the official end of the last two recessions, the unemployment rate continued to rise for about a year and a half, and unemployment didn’t get back down to its pre-recession levels for around another three and a half years after that.  If those recessions are any indication of what will happen this time around, the workers of this country are in for a very long and painful haul. 

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The key figure to look at is private sector job losses, which fell only slightly. Preliminary estimates showed that the private sector shed a net of 611,000 jobs in April, down modestly from preliminary estimates of 663,000 in March (subsequently revised to 693,000 in this month’s releases). That represents an improvement, but not much of one. The drop in job-losses appeared because the government hired 72,000 new workers, mostly by the federal government to prepare for the census.

In the short term government hiring creates jobs, but it does not represent the foundation for a lasting economic recovery. That comes from business owners and entrepreneurs finding new and better ways of creating value in the economy, innovating and creating wealth. The government merely redistributes wealth – government jobs may help individual workers but they do not help the economy move forward.

Key to watch out for are monthly job creation rates. Even in a downturn employers create (and shed) millions of new jobs each month. Since the recession began the new hire rate has fallen about 10 percent. This is part of why unemployment has risen so much: not only are workers more likely to be laid off, but it is harder for unemployed workers to find new jobs and get working again. An increase in private sector job creation rates will be an important signal of a when the labor market turns around.

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We don't know if job losses peaked.  Employers are still waiting to see what will happen.  If the Democrats get 60 votes for "card check" to end private ballots for unionization (and that also has a number of other less well publicized poison pills) then new hires will be delayed or avoided. Has the spending spree ended?  Will Obama's vision of health care reform ration health care as his European models do?  Then watch employment in health care drop further.  Will Obama try and reduce the cost of health care by lowering the value of pharmaceutical patents...then new efforts for new life saving drugs will fall.  Other nations that have done this no longer have vibrant drug companies that invent new drugs.  Many countries can and do reproduce old drugs.  Obama's health care rationing and slowing down the invention of new drugs will reduce unemployment rates in the future by reducing the denominator.

In this era of unremitting pragmatic hope a terrible jobs figure is reported as good news only because it was less terrible than the figures from the previous two months.   The unfolding "green shoots" doctrine seems to be that a reduction in the rate of decline in the economy generally and jobs specifically is cause for celebration.  Christina Romer has, I believe, the more sober perspective.   We should certainly welcome an easing of the rate of decline as a necessary precursor to recovery, but we are still, nevertheless, contracting a speedy clip, and are unlikely to see job growth until late in the year at the earliest, and then only modestly and only for a season.

Job growth should first appear in consumer services, followed by consumer non-durables.  Consumer durables will as a broad area remain under severe stress as the U.S. domestic auto manufacturers transit a painful downsizing, and this in turn will put further pressure on business fixed investment which will also be trying to grasp the painful consequences of President Obama's cap and trade threats. 

Who would have thought one year ago that economists and investors would be delighted when payroll employment fell “only” 540,000 in a month? But it’s true: April’s job loss of 540,000 looks pretty good when the monthly drop of payroll employment in the previous four months averaged 700,000. To be sure, the job decline in the private sector still looked awful in April. Part of the improvement in overall employment loss is explained by a big jump in federal government employment, much of it explained by hiring for the 2010 Census. Even in the private sector, however, the pace of job loss slowed, reflecting a slower rate of employment shrinkage in both the goods-producing and service-producing sectors. It no longer looks as though the job market is in free fall. It is still in decline, but the decline is not accelerating. It may be slowing.

I think the April statistics on initial unemployment insurance (UI) claims give us a hint the layoff rate has slowed. It looks as though the percentage of UI-covered workers who are losing their jobs and filing a new UI claim fell in April. Since the peak rate near the end of March, the weekly new-layoff rate has fallen about 10% Of course, the layoff rate remains terribly high.

Many people may be surprised to learn that the peak layoff rate in late March 2009 was only modestly higher than the peak rate in the early 1990s, and it was far below the peak rate we experienced in the 1981-1982 recession. People who were distressed by the record number of new claims for UI this past winter should bear in mind that the historical number of new UI claims can only be assessed relative to the number of workers who hold UI-covered jobs. Because the population has grown, the number of UI-covered workers is much larger today than it was in the 1980s and early 1990s. Therefore, the shockingly high number of people filing new UI claims last March must be weighed against the much larger number of workers who are at risk of being laid off and filing a claim for benefits. Perhaps today’s laid off workers are less likely to file a claim for UI benefits than was the case for laid off workers back in 1982 or 1991. It’s hard to see why, however. Workers in many states can now obtain more than a year of UI benefits as a result of filing a successful claim. The maximum permitted spell of UI compensation was shorter in the 1980s and 1990s.

Last year’s payroll employment numbers and unemployment insurance statistics gave us the first hint we were heading into recession. In the first half of 2008, when the GDP statistics still showed a growing economy, the employment and unemployment statistics provided a clear signal of rising distress in the job market. Perhaps the latest statistics on payroll employment and UI claims are giving us a hint that, while the economy is still shrinking, the pace of decline is slowing. That’s good news if you feared a recurrence of the Great Depression.

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