Everyone on Wall Street is focused on Friday's payroll report and trying to guess how things might go relative to the consensus forecast of 150,000 jobs being created in May. Today's ADP report that 133,000 private sector jobs were created in May is disappointing and implies that Friday's jobs number may be less than the consensus. In turn, this suggests too few jobs are being created to drive unemployment lower. If Friday's jobs number is too low, it could also mean reconsideration of quantitative easing -- a fresh flood of money -- by the Fed.
At the same time, Main Street and the nation's politicians are likely to focus on Friday's unemployment rate. The consensus is that the government will report that the seasonally adjusted unemployment rate will remain unchanged at 8.1%. However, the real meaning of the government's unemployment rate is becoming increasingly difficult to figure out. It seems like recent declines in the unemployment rate are incompatible with the weak GDP numbers -- particularly, the revised 1.9% GDP growth of the first quarter of 2012. It also seems as though a major reason the unemployment rate has been decreasing has to do with a sharp decline in the participation rate -- the percentage of Americans working or actively seeking work. As people who were seeking work become discouraged and give up looking for work, the unemployment rate tends to decrease.
Another way to look at the jobs situation that could be used by both Main Street and Wall Street is to consider the number of Americans employed as a percent of all Americans. This avoids the issue of the participation rate and whether it is influencing the unemployment rate. Instead, it implicitly sets a simple goal: increase the number of Americans working as a percentage of all Americans 18 or older. The results of this kind of calculation are shown in the chart below based on the Gallup Daily tracking survey of 30,000 Americans each month.
Some interesting things to note when looking at the jobs picture in this way:
- The percentage of Americans employed in April 2012 at 61.9% is essentially no different than the 62.1% of March and the 62.0% in April 2011.
- The lack of improvement in this employed ratio tends to support the idea that whatever job growth has taken place over the past 12 months, it has only been sufficient to keep up with the growth of the U.S. population.
- The situation has improved compared with two years ago when this employed ratio was 60.9%.
It may be that all the efforts to adjust today's job measures have created unintentional distortions. A simpler approach that just look at the percentage of Americans working may, therefore, provide a better -- less adjusted and more accurate -- view of the real jobs situation in the U.S. at this time.
Update: Read about Gallup's unemployment and underemployment results for May.