Mid-June Jobs Weak Before FOMC Meeting

As the Federal Open Market Committee meets this week, one of its main considerations will be assessing the strength of the labor market and how Chairman Ben Bernanke presents the Fed's future "tapering" intentions -- slowing the flow of liquidity the Fed is pouring into the U.S. economy -- to the markets. Gallup's Payroll to Population (P2P) measure suggests this may be a surprisingly easy task, given the weakness it reflects in the job market, and the related need to delay tapering. However, a not-so-easy task for Bernanke would be to take the opportunity that the ending of his term provides to offer some much-needed nonpartisan economic leadership in Washington on fiscal and regulatory issues normally beyond the Fed's purview.

Gallup's P2P shows that full-time jobs as a percentage of the population averaged 44.5% during the 30 days ending June 15, 2013, compared with 44.9% for the month of June 2012. In May, P2P also showed jobs this year trailing those of a year ago. Essentially, there has been no job growth relative to the U.S. population in 2013, with the exception of a temporary uptick in April. Gallup's P2P is not seasonally adjusted, so year over year comparisons provide the best insights into real job market conditions.

This finding is consistent with the government's jobs report, which shows that on an unadjusted basis, the number of unemployed Americans increased by about 300,000 in May -- 100,000 after seasonal adjustment. Perhaps more importantly, the unadjusted participation rate increased to 63.5% in May from 63.1% in April, indicating that more Americans joined the labor force -- something Gallup tracking picked up in April.

At the same time, the percentage of Americans working part time but wanting full-time work is higher now at 9.9% than it was in June 2012, at 9.5%. The U.S. economy simply is not providing the full-time jobs needed to support a growing economy.

The Wells Fargo-Gallup Small Business Index suggests small-business owners' future hiring intentions are modest at best. The most recent National Federation of Independent Business survey implies the same.

The fact is that while Fed policies and the associated "wealth effects" enjoyed by Wall Street and housing have helped the U.S. economy, the real jobs situation remains bleak. There has been little or no progress on the jobs front over the past year.

In turn, this suggests that in his presentation Wednesday, Bernanke needs to make it clear to Washington policymakers that the Fed's efforts to stimulate the economy on its own -- particularly in terms of jobs -- are failing. And he should suggest some policy actions to change the situation -- including areas of fiscal and regulatory policies that are normally outside of the Fed's purview. The chairman's term is ending soon, making him potentially an independent while still powerful nonpartisan economic policy leader in the nation's capital.

What the country needs right now is for someone to provide economic leadership in such a way that it breaks the political stalemate in Washington. Bernanke seems uniquely positioned to provide such leadership over the last half of 2013.

Gallup Measures Show Weak May Job Market

While perceptions of future Fed policies and the need to begin tapering -- pouring less money monthly into the economy sooner rather than later -- seem to be driving the financial markets, the actions Chairman Ben Bernanke and his associates may take, and their timing, likely depend on the relative strength of the U.S. economy, particularly the job market. Gallup monitoring of the job market suggests little progress over the past year, with the April improvement likely representing a short-term pull forward in hiring activity. The job situation is the "Achilles' heel" of the U.S. economy, and its apparent weakness may explain why the Fed maintains it can increase as well as decrease the amount of money it is pouring into the economy.

Gallup's Payroll to Population (P2P) jobs measure is at 44.1% as of May 23, slightly below April's 44.5% and the 44.4% of May 2012. April's increase appears to have been an indication of early hiring this year compared with 2012, and this hiring activity leveled off at last year's May level. At best, May's P2P suggests job growth is barely keeping up with population growth over the past months.

Part-time jobs show a similar lack of improvement, with 19.8% of the workforce employed in such jobs at the end of the third week in May, compared with 19.9% in April and 19.4% in May 2012. The percentage of employees working part time but wanting full-time work is 10.1%, showing no improvement from the 10.0% of a year ago.

Further, Gallup's Job Creation Index is at 19 as of May 23, the same as the reading for the month of May 2012, while the Wells Fargo/Gallup Small Business job creation measure is down slightly from a year ago.

No Time to Worry About Tapering

Current Fed policy is doing wonders for Wall Street and the housing market -- and many of us think the resulting wealth effects are having a positive impact on the U.S. economy. Of course, how the Fed exits its current stimulative mode without creating an economic mess is not clear.

It is clear, however, that the U.S. job market remains weak in real P2P terms, regardless of the numbers the government reports. In turn, this is not the time to focus on how the Fed may manage a new tapering effort. Instead, the Fed and other policymakers should focus on how they get the financial transition mechanisms working once more -- getting the money the Fed is pouring into the system into the hands of those who can use it effectively to create new businesses and jobs.

Gallup's Job Participation Rate Surges in April

Wednesday's ADP report has many economists lowering their job growth forecasts as they look to the government's jobs report for April to be released on Friday. At the same time, Gallup's monitoring of the jobs situation, based on 30,000 interviews per month, shows a surge in the job participation rate -- the percentage of Americans in the workforce -- creating the potential for a sharp increase in the government's unemployment rate, particularly if job growth is weak. The increase in the participation rate may also help explain why the Fed noted that it could increase, as well as decrease, the amount of money it is pouring into the U.S. economy.

Gallup's U.S. job participation rate hit 68.5% in April, its highest level since Gallup began monitoring it in January 2010, and up about one percentage point from the 67.7% of March and the 67.5% of April a year ago. The participation rate was 68.4% in April 2011 and 67.4% in April 2010.

During recent years, Americans have seen how a declining participation rate has lowered the U.S. unemployment rate as many job seekers gave up looking for work. Right now, we may be seeing the reverse, as optimism about the economy has many previously discouraged Americans getting back into the workforce and seeking jobs in April.

This surge in the workforce comes at a time when most of Gallup's other job measures are showing little or no job growth. For example, part-time jobs are at 19.9% of the workforce and did not increase in April. This is the same level as a year ago.

The same is true for net hiring, as Gallup's Job Creation Index is at 19 in April, essentially the same as the 20 of April 2012.

Even the April increase in Gallup's P2P (payroll to population) measure -- the best measure of real job conditions and the most positive of Gallup's job market measures -- does not appear to be sufficient to lower the unemployment rate once seasonal adjustments are made.

Government May Miss the Surge in the Participation Rate

Given the differences in survey methodology, it is possible that Friday's government report will not pick up the April surge in the participation rate. Further, even if the government does pick up the increase, it will apply seasonal adjustments that may differ from Gallup's findings.

Regardless, if the participation rate continues to surge in the months ahead, the government will eventually pick it up, and it will likely have significant implications for the U.S. unemployment rate. Instead of declining toward the Fed's 6.5% target, the unemployment rate could head in the opposite direction as a flood of new job seekers overwhelms modest job growth. As a result, the Fed could push even larger amounts of money into the economy while the number and volume of calls for increased federal spending has a surge of its own in the months ahead.

Many Retirees Say Low Rates Are Harmful

As central banks around the world pour liquidity into the global markets, many financial market observers worry about the potentially distortive effects of historically low U.S. interest rates. They are not alone, as half of retired investors in a new poll maintain low U.S. interest rates are doing substantial harm to savers and investors -- something Fed policymakers should keep in mind as they pursue their unprecedented monetary stimulus efforts.

The Wells Fargo/Gallup Investor and Retirement Optimism Index survey is conducted quarterly and defines investors as those having at least $10,000 of investable assets.

More specifically, these retirees report that low interest rates are forcing them to do some things they might not otherwise do. For example, 45% of retirees say low rates mean they are living less comfortably in retirement. A similar percentage (43%) say they are giving less to charity -- something that should be of concern to charitable organizations. Further, 35% are providing less financial help to their children -- just when a lack of jobs may make such help more important than in the past.

Still more disturbing is the impact of low interest rates on retirees' risk taking. More than one in three retired investors (35%) say they are being forced to put their money into investments they might otherwise avoid, and one in four retirees (26%) report they are taking more investment risk than they might if interest rates were higher. Retirees may feel they are forced to do so not only in order to live comfortably in retirement but also because 35% fear they will "outlive" their retirement savings. While those taking extra risk are not in the majority, they represent a substantial minority of retirees.

Of course, this is what the Fed wants -- investors taking more risk -- and doing so makes sense given the flood of global liquidity and the surging stock market. If anything, it seems likely that an even larger percentage of retirees will feel the need to increase their investment risk in the months ahead. But what happens if the global economy strengthens, interest rates increase, and the markets reverse?

Today's monetary policy puts retired investors, who average 70 years of age, in a very difficult investment decision-making environment: take more risk with money you can't replace and live more comfortably in retirement, or don't do so and see your investment portfolio dwindle and the comfort of your retirement decline.

Obviously, low interest rates put investment advisers under intense pressure to help retirees navigate through today's challenging investment environment. More importantly, low rates -- and policymakers' effort to force investors, including retirees, to take more risk -- may place an implicit policy burden on monetary policymakers: keeping retirees they encouraged to take more risk from incurring major losses as they manage the transition to a more normal interest rate environment.

March Jobs Picture as Bleak as It Was 12 Months Ago

Gallup's monitoring of current job market conditions suggest that Americans looking for a job right now face the same bleak situation they did at this time a year ago. This tends to validate the Fed's decision to continue pouring money into the U.S. economy. It also raises serious questions concerning the distortions created by government job reports in early 2013.

Over the past year, full-time job growth as a percentage of the population -- reflected in Gallup's Payroll to Population (P2P) job measure, which is at 43.4% for the month of March -- is essentially no different than it was in March 2012, at 43.7%. At best, full-time job growth has just barely kept up with population growth over the past 12 months.

Gallup's Job Creation Index, at 17 in March, is essentially the same as its 18 reading a year ago. Job creation has not improved over the past 12 months.

Even part-time jobs, which surged in February, fell back to 19.8% of the workforce in March -- matching a year ago. Part-time workers may once again be in the forefront of job losses as companies pull back from hiring.

Wall Street has recently surged to new highs, with autos and housing showing new life and government data showing substantial job growth -- nonfarm payroll employment increased by 236,000 in February. In contrast, Gallup's job data suggest caution concerning the sustainability of recent trends in autos, housing, and the U.S. economy. Based on roughly 30,000 consumer interviews monthly, it appears that the real job situation has not improved over the past 12 months. It is hard to see how consumers can continue spending -- particularly on large purchases such as autos and housing -- with no real improvement in jobs.

Of course, the so-called political class is likely to point to sequestration and the elimination of the payroll tax holiday as reasons for disappointing job growth. However, these are recent phenomena, and do not explain why job growth in the first quarter of 2013 is no better than in the first quarter of 2012.

Whatever the government reports when it releases March jobs numbers on Friday, distorted or not, the real job situation suggests policymakers need to refocus on job creation; issues involving job growth should have top priority over everything else. At this point, it does not appear that -- try as it might -- the Fed can succeed in significantly improving the U.S. job situation on its own.