When the monthly employment report was released last week one statistic cited was that we are at a new record level for jobs in this country. Hearing a story that we are at an all time high normally brings a connotation of good news. This is certainly true in the world of sports, where records are treated as a major accomplishment.
This employment record really needs to be examined in the proper context. While it is good to finally hear that we have regained the jobs lost in the prior recession, the labor market is still far from healthy.
The length of time it took to achieve a new record level in jobs was far beyond what has taken place in prior periods. The prior peak in jobs was December 2007, so we took nearly 6 and a half years to get back to where we were. Most other job recoveries from recessions since World War II tended to average around two years, though the one from the 2001 recession took nearly four years.
Because we have a growing population, the unemployment rate today at 6.3 percent is higher than the 5 percent level in December 2007. Looking at the labor force participation rate the situation looks even worse. At the beginning of 2008 66.2 percent of the working age population was in the labor force compared to 62.8 percent currently.
While we have the same total number of jobs as before, the mix is somewhat different. The biggest grower has been the health care industry followed by accommodation and food services. The industries with the largest declines have been manufacturing and construction. The decline in manufacturing jobs is not necessarily a bad thing, since that has been a long-term trend brought about by massive productivity increases.
If you look at the stock market, it is more than 20 percent higher, as measured by the S&P 500 than its prior record level established in 2007. In addition corporate earnings are at a record level. This growth in earnings is partly due to productivity improvements, but also a greater share of profits coming from foreign markets.
The real estate market, while strong nationally and locally recently, still has not achieved the record level in prices set in 2006. There are of course some major metropolitan areas, such as Denver and Dallas that are setting new highs. While Los Angeles prices overall are below 2006 levels, certain neighborhoods in Culver City and the Westside of LA appear to be setting new records. A real estate professional should be better attuned to which specific neighborhoods have performed better.
Our current economic environment has been unusual in that the recovery has been so slow and drawn out. The employment market is certainly a perfect example of that. Things are getting better, but progress is at a subdued pace.
The stock market, while far from perfect as a gauge of future economic activity, does tend to be forward looking. The fact that the market is performing well would imply a stronger economy in the future. The relatively weak readings we saw in the first quarter of this year appear to be primarily weather related.
I would anticipate the employment market to continue to gradually improve. The participation rate in the labor force should increase, as some people regain confidence about their chances of securing a job. Eventually a stronger labor market should lead to greater wage gains than we are currently seeing. However, that will take some time given the potential of new supply to the labor force.