On Friday, the Federal Reserve reported that capacity utilization for U.S. industry in July rebounded slightly from the record low in June of 68.1%.  The July reading was 68.5%.  The  The Fed’s capacity utilization calcuation is based on the percentage of total U.S. industrial capacity being utilized.  

Capacity Utilization is considered a leading indicator of inflation and future capital spending.  The July reading is an indicator that there is little inflationary pressure in the U.S. economy (at least now - I’m concerned about the effects of U.S. deficit spending on long-term inflation).  The near record amount of spare capacity also indicates that industry has little need to spend capital to increase production (even if demand picks up significantly).  What is still not obvious is if the slide in capacity utilization has ended.

Data source:

U.S. Federal Reserve

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The above chart shows what I refer to as the “jobs gap” that has been created since December 2007.  The jobs gap includes all nonfarm payroll losses and the lack of new job creation.  In order to just keep the U.S. unemployment level constant approximately 125,000 jobs must be created each month.  The above chart layers the lack of new job creation on top (or bottom) of the nonfarm payroll losses to give a picture of the true employment problem the U.S. is facing.  The U.S. is now faced with a “jobs gap” that totals just over 9 million.  In order to return to the pre-recession unemployment rate a total of 9 million jobs would have to be created immediately.

Here’s another way to look at the issue.  In order for the U.S. to return to the pre-recession jobs situation in the next two years a total of 12 million jobs will need to be created.  12 million = the current nine million gap + the three million new jobs that would need to be created over the next 24 months to keep pace with new individuals entering the labor force.  Given these numbers I believe the U.S. unemployment rate will remain elevated for many years to come (even long after we start to see improvement in the employment situation).

Data source:

U.S. Bureau of Labor Statistics

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As the above chart shows total nonfarm payroll losses in the U.S. have topped 6.6 million since December 2007.  This leaves us with a major ”jobs gap” to fill in order to return to pre-recession employment levels.  Check tomorrow’s post to see why the above chart only represents a portion of the total ”jobs gap” that needs to be filled.

Data source:

U.S. Bureau of Labor Statistics

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Getting better, but still bad.

Data source:

U.S. Bureau of Labor Statistics

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While the U.S. jobs data released on Friday was an improvement over prior months it was not as rosey as many claimed.  The offical unemployment rate declined from 9.5% in June to 9.4% in July, but this is misleading.  Over the next several days I will post charts that will help give a better perspective on the jobs picture in the U.S.

The first chart above shows the number of total unemployed persons in the U.S. over the past few months.  If you just look at this chart, you again would be mislead.  The chart clearly shows that the number of unemployed persons in the U.S. declined in July.  Good news, right?  I will answer that question with another question.  What happened to the people that are no longer unemployed?  Did they find jobs, or did they fall out of the offical labor force?  I’m thinking the later.  Why?  Look at the second chart.

The second chart shows the total number of employed persons in the U.S.  If the total number of unemployed persons declined in July, wouldn’t you expect the total number of employed persons to have increased?  Yes.  But, it did not.  What happened was the offical labor force shrank.  One way this happens is when people have been unemployed for so long that they stop looking for work.  The government then just excludes these persons from the labor force.  They are not employed or unemployed - just out of the labor market.

Tomorrow I will have a chart on payroll numbers.

Data source:

U.S. Bureau of Labor Statistics

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Each state administers its own unemployment insurance benefits program.  Each state also has its own unemployment insurance trust fund, and some are in better shape than others.  Above is a chart of the states that are now relying on loans from the Federal Unemployment Account to provide for continued unemployment benefits to the qualifing unemployed in their state.  In the past month: 1) Illinois began to take trust fund loans, and 2) the total amount of loans increased by $2.45 billion.  Total loans now amount to over $12.8 billion.

Data source:

U.S. Department of Labor, Employment & Training Administration

National Conference of State Legislatures

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Data source:

Dow Jones Indexes

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