The Federal Reserve (Fed) announced the addition of 169,000 jobs in its August 2013 report, and said the 7.3% unemployment rate is the lowest in five years. More than 300,000 jobs were added since June 2013. Average hourly earnings rose to $24.05, a $0.05 increase, and the average work week ticked up to 34.5 hours from 34.4, implying companies are requiring more labor hours from their workforces. While the numbers are appealing at first, a slew of hidden downsides have economists worried about the country’s unemployment direction. The new job numbers from June to August 2013 reveal the worst three-month stretch in a year.

Orange bar, Private Payroll Job Adds; Green bar, Government Payroll Job Adds

The Fed’s 169,000 job additions fell short of its estimation of 180,000. Its estimations for July and June also failed to meet expectations, and were significantly dialed back after further research provided a more accurate count. June’s initial jobs number of 188,000 was reduced to 172,000, while July’s suffered a drastic reduction of 162,000 to 104,000. In all, 74,000 less jobs were created than anticipated by economists, a trend that has experts on edge.

The August numbers are “downright scary,” says Michael Hicks, director of the Center for Business and Economic Research at Ball State University. “While the top line data report of 169,000 new jobs sounds rosy, the composition of new jobs is horrible. All the new net job growth is led by agricultural workers, which is distinctly a seasonal boost.”

Hicks added: “Non-agricultural workers saw jobs plummet by 218,000, but government jobs grew by 324,000. So, non-agricultural private sector employment actually declined by 542,000 jobs … and another 156,000 turned from full to part time due to weaker economic conditions … This is a white-knuckle loss of employment opportunities for one month.”

In addition, the 7.3% unemployment rate only takes into account those looking for work. According to a Barron’s article by Gene Epstein, just 63.2% of America is actively employed or in search of employment, the lowest amount in 35 years. The total has dropped 1.6 percentage points since 2010.

“Some of this is due to the aging of the workforce but it reflects a weak labor market,” said Stephen Bronars, senior economist at Welch Consulting. “The unemployment rate is declining for all the wrong reasons – people are dropping out of the workforce.”

More than 4 million Americans have been out of work for more than six months, and their odds of finding a job has barely improved in the past two years. Nearly a million more Americans say they gave up looking for work because they don’t believe they can find a job. August is the 40th consecutive month in which workers leaving the labor force outnumber those who found jobs.

Of the 169,000 August hires, many were in lower paying industries.  Retailers contributed 44,000 jobs, while hotels, restaurants and bars added 27,000. Temp hiring rose by 13,000. Many more jobs, including automakers and teachers, recently returned to the work force after being laid off months ago. Thousands of part-time opportunities were created at the expense of full-time positions. Roughly 11.3 million people remain unemployed, and the economy needs at least 200,000 new jobs a month just to keep pace with population growth.

The situation has become so dire that the Fed is openly considering tapering off its $85 billion monthly mortgage bond payments and investing more into the job market.

“We have to face the fact that the economy is growing slowly, while businesses shed workers at an astonishing rate,” continued Hicks. “If the government and farm sectors had not added jobs, many economists would now be predicting a new recession.”

Some more opportunistic economists say part of the blame can be attributed to the retiring of the baby boomer generation. Other underlying factors make employers hesitant to find new workers, including the uncertainty of the new healthcare system which goes into effect in 2014.

Bob Funk, chief executive of Express Employment Professionals, a staffing firm, has seen his agency permanently place half of its employees in recent months. The number is typically about two-thirds. The unstable costs for employee healthcare have businesses balking at hiring full-time workers. “(Employers) don’t know how to manage their business as well when they don’t know what their costs are going to be,” said Funk.

Meanwhile, the oil and gas industry has experienced steady job growth, particularly over the past few months. The recent boon in the industry is not expected to be short-lived, according to a January 2013 report by IHS. The company claims unconventional oil and gas and energy-related chemicals activity currently support 2.1 million jobs. The number is expected to increase to more than 3.3 million by 2020 and reach 3.9 million by 2025. The oil and gas industry alone has created more than 162,000 jobs—a 40% increase—from the start of 2007 through yearend 2012, according to a January 2013 report from the US Department of Labor’s Bureau of Labor Statistics. Over the same period, the increase of total US private sector employment amounted to more than 1 million jobs, or about a 1% rise.

While the energy industry has sustained growth through such a discouraging time, many other industries are struggling in a very turbulent job market. The use of staffing agencies, generation Y’s introduction to the work force, and the increased amount of time spent acquiring degrees leaves many companies trying to adjust to the new issues.

“We’ve got a generational shift going on here. It’s going to be persistent,” said Sue Marks, founder and CEO at Pinstripe, a global employment recruiting firm. “It’s a systemic problem and a systemic situation that’s going to require some new thinking.”

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