Crescenzi: Teen Jobless Rate Spikes

The unemployment rate increased to 5.5% in May from 5.0% in April, the biggest one-month jump in 22 years. The increase will make headlines and be at the top of broadcast and cable news shows throughout the day, and will thus play badly on Main Street. The unemployment rate is one of the few economic indicators that is universally understood, which is what gives the unemployment rate a galvanizing influence. That said, rarely is consumer confidence an important leading indicator; confidence is the last to turn.

Other aspects of the jobs report are plain vanilla, with payrolls falling 49k in May, roughly as much as was expected. The decrease was the fifth in a row, with the 5-month drop averaging 65k per month, which is about half the 5-month tally from the recessions of 2001 and 1990-1991. These data reinforce the idea that the economic contraction has thus far been shallow, which has helped keep risk assets from deteriorating, although new pressures are emerging from the sudden surge in the price of crude oil.

A major influence in the jobless rate's rise was an increase in teenage and graduating-student employment. For example, the teenage unemployment rate increased to 18.7% in May from 15.4% in April, its highest level since June 2003, which was the highest since March 1994. The increase of 3.2 percentage points appears to be the largest increase ever, dating back to 1948.

There was also a surge in unemployment among those aged 20-24, likely reflecting a surge in graduating students that entered the labor force. The unemployment rate for this group increased to 10.4% from 8.9% in April. The increase in both the teenage unemployment rate and that of those aged 20-24 almost certainly reflects difficulties in adjusting for the many variables associated with the ending of the school year, changing demographics, and the timing of the jobs survey. It is therefore likely that some of the month's increase in the unemployment rate will be reversed.

If not for the surge in energy prices, the influence of the special factors boosting the unemployment rate would be given its due attention and the focus would be on the payroll number, which supported recent data indicating a shallow economic contraction. Some of these data include the two ISM indexes, durable goods orders, jobless claims, and May chain store sales.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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