Weak April Jobs Report Highlights A Troubling Trend

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

May 10, 2016

IN THIS ISSUE:

1. April Unemployment Report Was Very Disappointing

2. Labor Force Participation Rate Posts Surprising Reversal

3. Transgender Restrooms: North Carolina Vs. Justice Dept.

4. Enter the US Justice Department, With or Without Authority

Overview

Last Friday’s much weaker than expected unemployment report raised serious new questions about the economic recovery. While the headline unemployment rate held steady at 5%, the number of new jobs created last month was disturbingly lower than the pre-report consensus at only 160,000. Forecasters had expected 220,000 new jobs last month.

The anemic 160,000 new jobs in April highlights a worrisome seven-month trend of falling job creation since last October. Combine that with the weaker than expected 1Q GDP report showing growth of only 0.5% and the result is an economy that is barely growing at all, which raises the odds of a new recession just ahead.

Following that discussion, I will veer off my usual writing topics and we will look into the latest national controversy over “gender-neutral” restrooms. The federal government is demanding that “transgender” women (with male body parts) should be able to use the women’s restrooms. Likewise, transgender men (with female body parts) should be able to use the men’s restrooms.

Ground-zero in this fight currently is in North Carolina which recently passed a law mandating that restroom access be determined by the person’s biological gender at birth – as stated on their birth certificate. Last week, the Justice Department threatened to file a lawsuit which could cut off billions in federal funding for North Carolina if the state does not repeal the law. On Monday, the state of North Carolina filed a related lawsuit against the Justice Department.

Obviously, there is a great deal of emotion on this issue, and these so-called “bathroom bills” are only going to intensify in the weeks and months ahead. So we’ll take a look at the issues today. It should make for an interesting E-Letter so let’s jump right in.

April Unemployment Report Was Very Disappointing

Most Americans pay scant attention to the plethora of economic reports released each month from the government and other independent reporting agencies. Among those who do pay attention, most just read or hear what the mainstream media reports. This can be very misleading.

Take last Friday’s unemployment report for April as a prime example. Ahead of the report, the consensus was that the April unemployment rate would be unchanged at 5%, the same as the March report. At 5%, the jobless rate would be almost half what it was at the height of the Great Recession of late 2007/early 2009.

That’s a good thing, right? And that’s what the mainstream media reported. But as is so often the case, the “internals” of the reports often tell a different story. Unless you have an independent source interpreting the economic news, as I and others do, you can have a warped opinion of how the economy is really doing.

With that in mind, let’s look at last Friday’s unemployment report for April. As noted above, the headline unemployment rate came in at 5% as expected, the same as that for March. Yet the details of the report revealed a much different story. I’ll break them down for you.

Change in Jobs for AprilFor starters, the number of new jobs created in April was pathetic. The number of new jobs created in April was only 160,000 versus the pre-report expectation of 220,000 and the weakest new jobs reading in seven months. Prior to April, the US had added 200,000 or more jobs in five of the previous six months.

The latest jobs data provided an unexpectedly negative signal about the nation’s labor market. A surge of Americans dropped out of the workforce and hiring in several key industries, including construction and manufacturing, all but stalled. The Department of Labor also revised downward jobs gains in the prior two months by a combined 19,000.

The deceleration in jobs growth provides the first potential signal that the nation’s recent economic sluggishness – the result of a still-strong dollar, lower corporate profits and cautious business and consumer spending – could be spilling into the labor market. Economists said Friday that employers are growing wary about expanding their payrolls and adding costs.

Some suggested that the weaker than expected job growth in April was an aberration. Others suggested that perhaps the months prior to April were the aberrations. In those earlier months, the US had maintained robust employment growth overall, even though the rest of the economy was stuck in second gear. Now we’re in a seven-month trend of falling jobs growth.

And let’s not forget that the government recently estimated 1Q GDP grew only 0.5% (annual rate) in January-March. Since then economists have said the contradictory mix of rapid hiring and weak GDP growth is unsustainable.

Labor Force Participation Rate Posts Surprising Reversal

The next disappointing element of Friday’s weak jobs report was the surprise drop in the Labor Force Participation Rate, which had been improving in recent months. The Labor Force Participation Rate includes those who are employed and those who are actively looking for work, even if they haven’t found a new job yet.

Labor Participation Rate

This participation number has plummeted from over 66% in early 2007 to near 62% in 2015. Most in the mainstream media attribute this decline to the Baby Boomers retiring, rather than the widespread weakness in the economy. That is not entirely true. Over 300,000 Americans left the labor force in April – meaning they either departed jobs or abandoned their searches.

The participation rate had been improving since late last year due to more people feeling confident enough about the economy to start looking for work again. The bigger than expected drop-off in April has economists worried that the gains since late 2015 may be reversing. It is a serious concern.

The one bright spot in Friday’s report was the fact that wages increased by a solid eight cents per hour on average in April. That’s the third-best monthly gain over the last year, and during that span, wages have risen 2.5% – a notch above the 2.0% pace maintained throughout much of the recovery from the Great Recession.

Finally, with the combination of the weak 1Q GDP report (+0.5%) and Friday’s weaker than expected jobs report, most Fed watchers now believe there will not be a second Fed Funds rate hike at the next Fed policy meeting on June 14-15. Not everyone agrees, see link below.

Transgender Restrooms: North Carolina Vs. US Justice Department

Unless you have been living under a rock, you know that there is currently a heated national debate over which public restrooms certain members of the LGBT (Lesbian, Gay, Bisexual, Transgender) community should be able to use.

The LGBT crowd insists that its constituents should be able to choose whichever restroom fits the lifestyle they currently practice. As an example, they believe that a transgender woman (with male body parts) should be able to use the women’s restrooms in public places. Likewise, a transgender man (with female body parts) should be able to use the men’s restroom.

Most employers are legally required to provide workers reasonable access to restroom facilities. The Labor Department’s Occupational Safety and Health Administration (OSHA) requires that employers make toilet facilities available so that employees can use them when they need to do so, and the employer may not impose unreasonable restrictions on employee use of the facilities.

No federal, state or municipal laws or regulations specifically pertaining to gender identity require employers to utilize one type of bathroom over another, or to construct new facilities to accommodate transgender individuals. However, as I will discuss below, some jurisdictions regulate aspects of these restrooms.

Gender Neutral RestroomFor example, the District of Columbia requires single-occupant restroom facilities in certain public spaces to be “gender-neutral,” meaning that anyone can use them.

Restrooms designed for use by one individual at a time may not have a specific gender designation with “male” or “female” signage or icons – but the DC law does not require employers to have single-occupant restrooms instead of more traditional multi-user restrooms.

As you are probably aware, many Americans are outraged at the thought of a man dressed as a woman being allowed to use the women’s restrooms and a woman dressed as a man using men’s restrooms.

At least a dozen states are considering  so-called “bathroom bills” requiring that the bathroom a person uses is determined by his or her biological gender at birth – as stated on the person’s birth certificate. North Carolina has actually done it and hence, is at the center of the latest firestorm.

Enter the US Justice Department, With or Without Authority

Not surprisingly, these actions by North Carolina and under consideration by other states have enraged the LGBT community. Its leaders apparently appealed to the US Justice Department claiming that these new bathroom bills are in violation of the 1964 Civil Rights Act.

On Wednesday of last week, the Justice Department notified North Carolina Governor Pat McCrory in a letter that the state’s “House Bill 2” – which restricts transgender bathroom access – violates certain sections of the Civil Rights Act. Justice demanded that the state “remedy” the violations by Monday (yesterday).

The letter reportedly warned that the state of North Carolina could lose billions of dollars in funding received annually from the federal government. A similar letter was also reportedly sent to the University of North Carolina last week, with similar warnings to come for other public universities that receive federal funding.

On Thursday, North Carolina House Speaker Tim Moore said legislators would not meet the federal government’s deadline. “We will take no action by Monday,” Moore told reporters “That deadline will come and go. Obviously, we don’t ever want to lose any [federal] money, but we’re not going to get bullied by the Obama administration to take action prior to Monday’s date. That’s not how this works.”

Other North Carolina leaders also reacted strongly against the letter. Phil Berger, president pro- tem of the North Carolina Senate, called the letter “a gross overreach by the Obama Justice Department that deserves to be struck down in federal court.”

If the state refuses to repeal or amend the legislation, the Justice Department has several options, legal experts say. The Civil Rights Division can apply for a federal court order to require compliance, putting the case in the hands of a federal judge.

It could also start initiating action to limit the distribution of federal funds. Last year, the Department of Education gave North Carolina $4.3 billion for public kindergartens, schools and colleges alone.

“This sets up a battle between the state and the federal government,” said Jane Wettach, a professor of law at Duke University, a private university in Durham, N.C. “Our state officials are saying that this is federal government overreach, but the federal government has the power, certainly over federal funds.”

There is no recent precedent for the federal government threatening to withdraw public education funds over a state law, although federal agencies have threatened to exert sanctions on some school districts to change their transgender restroom policies.

In November, federal education officials charged that a high school district in Palatine, Illinois violated Title IX anti-discrimination laws by not allowing a transgender male student who identifies as a girl full access to the girls’ locker room.

Justice Department officials have yet to comment on whether they plan to send letters to other Southern states that are considering similarly controversial legislation.

Last month, Mississippi Governor Phil Bryant signed a law that, among other things, permits businesses and faith-based groups to deny services to people based on their gender identity or sexual orientation. The law, which will also allow employers and schools to refuse to allow transgender people to use the restrooms or locker rooms of their choice, goes into effect July 1.

North Carolina Governor Pat McCrory has said the federal government “is attempting to rewrite the law and set restroom policies for public and private employers across the country, not just North Carolina.”

Gov. Pat McCroryGov. McCrory said Sunday on Fox News that he will meet the Justice Department’s Monday deadline with a decision to either recommend scrapping the state’s recent transgender restroom law or face legal action and risk losing federal funds.

True to his word, Gov. McCrory announced on Monday afternoon that the state of North Carolina is suing the Justice Department and Attorney General Loretta Lynch in federal court over its bathroom bill.

In a press conference yesterday, McCrory stated, “The Obama administration is bypassing Congress by attempting to rewrite the law and set restroom policies for public and private employers across the country, not just North Carolina. This is now a national issue that applies to every state and it needs to be resolved at the federal level.” Stay tuned.

All the best,

Gary D. Halbert

SPECIAL ARTICLES

N.C. Governor Sues U.S., Escalating Fight Over Bathroom Law

Bill Gross & Mohamed El-Erian think Fed could hike in June, despite weak jobs report

Slow Economy Raises America’s Political Temperature (very interesting read)


Read Gary’s blog and join the conversation at garydhalbert.com.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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