Recent Jobs News Confusing as Strategic Planning Season Approaches

Mike Ginsberg

Should credit and collection professionals who are evaluating their company’s financial results increase their forecasts in light of the current positive news about the U.S. unemployment rate? Not yet.

A recent article that appeared on insideARM provided us with positive news on the unemployment front and they were not alone. Consider the following positive indicators:

• U.S. employers added 217,000 new jobs last month, putting the average for the last three months at 234,000, up from an average of 197,000 over the last twelve months
• U.S. employers finally replaced all the jobs lost since late 2007
• The unemployment rate is now near a six-year low
• The underemployment rate dropped to its lowest level in nearly six years
• U.S. payrolls in May hit an all-time high according to the Labor Department’s latest employment report

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On the other side of the coin, some experts are viewing the drop in the unemployment rate less favorably. According to Real Time Economics blogger Phil Izzo, last month’s drop in the unemployment rate came in large part because of a substantial decline in the labor force, or the total number of people working or looking for work. Nearly 200,000 more people were in the labor force last month. But that doesn’t totally offset the 800,000 drop seen the prior month, and it keeps the labor force participation rate at a level that matches multi-decade lows.

Izzo also pointed out that there were 697,000 discouraged workers in February, the lowest level since March 2009. Those discouraged workers aren’t counted as unemployed or part of the labor force because they didn’t actively look last month. Meanwhile, there were 7.3 million people working part time but who wanted full-time work. That is still high historically, but remains below last year’s average.

Here are some less rosy facts to consider:

• The unemployment rate remains approximately 50% higher today that before the start of the recession
• Almost one in four of those looking for work have been out of a job for more than a year
• Since the economy emerged from recession five years ago, wage gains have barely managed to keep ahead of inflation, an indication of weak demand for labor
• More than 40% of the jobs added in just the past year have come from lower-paying fields such as food service, retail and temporary help

According to Jeff Stibel, Chairman and CEO of Dun & Bradstreet Credibility Corp. and author of Breakpoint and Wired for Thought, unemployment forecasts are generally based on past trends but the assumptions being used may be wrong this time around. In past recessions, he pointed out that small businesses fueled early job growth. During the current economic recovery, however, the largest of businesses added to their payrolls first, while small businesses have significantly underperformed in job growth. This has essentially created an inverse trend.

The bottom line is simple to calculate. The undisputable fact is that the unemployment rate has dropped markedly in the past year and mostly for positive reasons. However, valid negative viewpoints questioning the strength and sustainability of current unemployment levels also exist and need to be factored in before anyone in the ARM industry revamps their liquidation forecasts.

This and other important trends in the ARM industry will be addressed in the Kaulkin Ginsberg 2014 midyear report which will be made available shortly after the end of Q2. If you haven’t downloaded the 2013 report, request a copy here.