The Good and the Bad in 8.6 Percent

The Obama administration got an early Christmas present, a month of great PR saying 8.6 percent unemployment. Republican presidential candidates on the other hand are probably upset about the jobs number—ironically, they probably are hoping for a terrible economy over the next 12 months. But lets dig into the BLS numbers to see what the true positives and negatives are in the employment situation report, because while 8.6 percent unemployment certainly sounds better than 10 percent, it is not all roses.

Summary: Cautiously non-optimistic. I don’t think this employment report should be taken as evidence that the jobs market is getting better. What gains we saw were small. And 64 percent of the seasonally adjusted jobs (120,000) added this month were retail (50,000) or leisure sector (22,000) jobs—not exactly building in the most sustainable sectors. Little has been done to change the reality of the structural problems in the American economy.

Headline stats: Good

Unemployment has been between 9 percent and 9.2 percent since April, but for November it fell to 8.6 percent. Why? According to the BLS, “Employment continued to trend up in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down.” In general this is a positive sign. We’ve seen the weekly unemployment claims falling over the past several weeks (yesterday’s 400,000+ claims not withstanding and a bad omen for the future), so this number is not unexpected. It is important, though, that the employment gains come in fields of sustainable work, like health care, and not be temporary hires, like seasonal retail jobs, for this positive trend in unemployment to continue.

Participation Rate: Bad

The number of unemployed persons fell to 13.3 million, which is down about 600,000 from August’s near 14 million. And it down significantly from last November’s 15 million unemployed. But the labor force participation rate has continued to fall. In November of 2010 it was 64.5 percent and this November it was 64 percent. The total number of people not in the labor force increased from 84.7 million last year to 86.5 million this year, and also increased by 500,000 from last month. According to the household survey there are 350,000 more people that want a job today then there were last November. So the 8.6 percent unemployment stat is likely to be unfelt in many places around the country.

Long-term Unemployed: Neutral

Since the long-term unemployment situation didn’t get any worse, this could be perceived as a positive overall. But the numbers are still pretty grim. The number of those without a job for 27 weeks or more fell from 5.8 million to 5.7 million, but increased from 42 percent of the jobless to accounting for 43.0 percent of the unemployed. The biggest upside is that the number of long-term unemployed is down from last November’s 6.3 million. The biggest downside is that the average number of weeks unemployed has increased from 33.9 weeks in November 2010 to 40.9 weeks in November 2011.

Non-farm Payroll: Neutral

The establishment survey indicated the private sector added 140,000 jobs, and the total increase in payrolls was 120,000. This is better than last month’s 100,000 gain, but is a little less than the 12-month average gain of 131,000 a month. And that is still way below what is needed for a long-term turn around in unemployment that has a high labor force participation rate.

Sectors Adding Jobs: Neutral

  • Construction jobs fell by 12,000 from October, but were up 18,000 from last November (seasonally adjusted).
  • Manufacturing jobs increased just 2,000 from October, and were up 210,000 from last November (seasonally adjusted).
  • Retail jobs were up nearly 50,000 from October, and up 226,000 from last November (seasonally adjusted). The danger is that the nominal (non-seasonally adjusted) number of jobs added to retail was 400,000 and many of those jobs, primarily added in clothing and general merchandise stores, will go away after the holidays.
  • Financial sector jobs increased by 8,000 from last October, Professional services jobs were up 33,000, Educational jobs by 8,000, Leisure and hospitality jobs were up 22,000, and Health Care jobs by 19,000. Meanwhile net government jobs declined 20,000, even with the federal government adding 1,500 workers and state education workers increasing by 1,900.

Demographics: Bad

According to the household survey, the jobless rate for men and whites declined to 8.3 percent and 7.6 percent respectively, but the rates for adult women (7.8 percent), teenagers (23.7 percent), blacks (15.5 percent), and Hispanics (11.4 percent) showed little or no change.

Productivity and Compensation: Neutral

Revised data for the third quarter of 2011 shows unit labor costs in nonfarm businesses fell 2.5 percent, reflecting the 2.3 percent increase in output per hour combined with a 0.2 percent decline in hourly compensation.

See all employment data from the BLS here.