Here’s to hoping you enjoyed your long Independence Day weekend. I sure enjoyed mine, because it wasn’t until today that I looked past the touchy-feelgood headline numbers in the June jobs report. 288,000 new jobs and the unemployment rate dropped to 6.1%, the lowest it’s been since before the beginning of the Great Recession. Even the figures for April and May were unexpectedly revised upwards. Helping to keep that good mood humming along was the big increase in auto sales, which “shattered expectations.” Sales were so hot that even beleaguered GM, which in recent months has announced recalls for seemingly every car and truck sold since the Truman administration, saw a modest increase. And let’s ice that cake with the good news from Bloomberg that after a slow (and cold!) winter, pending home sales jumped 6.1% in May. That’s the biggest increase in four years.
Jobs, cars, and homes make up the bulk of the value of most Americans’ incomes and possessions, so happy days must indeed be here again, right? Wrong. I looked beneath the headline numbers, and now I’m sorry we don’t all have Monday off from work, too.
You might want to get your boss on speed dial and prepare to call in “sick of all this” while I show you the real picture.
Are you ready?
The United States lost over half a million full-time jobs just last month. 523,000 full-time positions eliminated. We haven’t seen that kind of shrinkage since the dark days of 2008-09. This might be why Neil Irwin, writing for the New York Times, cautions readers to “hold the fireworks.” He cautions:
For example, if you wanted a reason to be skeptical of the June jobs numbers, you could point out that the bad winter weather forced many schools to remain open later into June than usual, resulting in more teachers and administrators being on payrolls in the middle of last month than the seasonal adjustment procedures would account for. Private educational services jobs rose by 5,000, while local and state government jobs added a combined 20,000. There is a good chance those jobs will “disappear” in the July numbers, even if it remains just a continued after-effect of the bad winter.
Nobody wants to look for reasons to be skeptical, or as I said of the headline number on Thursday, “I’ll take it!” But it doesn’t take a skeptic to look beneath the headlines to figure out where the 288,000 net figure came from — and it came from a surge in part-time employment, which surged by nearly 800,000. An almost equal number of workers — 676,000, not seasonally adjusted — became “discouraged” and left the labor force and are no longer considered by the BLS to be unemployed. Teenage unemployment shot up again, to 21% from 19.2%. The labor force participation rate held steady, but is down two-thirds of a point from a year ago, meaning that job growth isn’t keeping up with population growth. The number of African Americans in the labor force is a similar story — better than last month, worse than last year.
We should cheer that the total number of Americans with jobs is going steadily up, but those cheers should be muted by the tough reality that when it comes to creating jobs, the Obama economy isn’t quite treading water.
And there may be dark clouds behind the silver lining of home and auto sales. Real Estate Weekly reports that “lax underwriting” may account for recent gains:
“There is a deterioration of underwriting standards independent of what is happening to (market) fundamentals,” said Sam Chandan, an economist who follows the U.S. real estate markets. “Lenders have good reason to be concerned right now about some of the trends we are observing.”
Subprime loans are now only a small fraction of new mortgages but the trend line, despite some sensible reforms hidden in the muck of Dodd-Frank, is going up. Something similar is occurring with auto sales, where loans with worse terms are being granted to riskier borrowers:
The OCC says that more loans are being pushed based on their low monthly payments, which generally means loan periods are getting longer and puts borrowers further “upside down,” owing more than the car is worth. Data from Experian also show that “deep subprime” loans, to borrowers with credit scores below 550, increased from 2% of the market to 3%. Total subprime and “nonprime” loans are 34% of the market, up just a touch from last year.
It looks like the Fed’s Forever Easy money policy might finally be trickling down from the soaring stock markets, and into risky consumer loans. But what happens once the market for people with bad credit scores willing to take on six-year car loans is tapped? Or when the housing market finally rubs up against shrinking full-time employment?
We’ve seen the world end this way before — and it ends not with a whimper, but with a bang.