Economics, U.S. Economy

November jobs report: 7 reasons why it’s better but still terrible

When the U.S. economy grows as slowly as this one has for the past year, history suggests there’s a 70 percent chance of recession happening in the upcoming year. But maybe we will be in the 30 percent group. The November jobs report out today is another data point showing the economy continues to grow, although not by very much. The U-3 unemployment rate fell to 8.6 percent (the lowest since March 2009), according to the Labor Department, as nonfarm payrolls rose 120,000 last month. Revisions to the employment numbers for September and October to show 72,000 more jobs created than first reported. A bit more of a drill down from Reuters:

1. All the increase in nonfarm payrolls in November again came from the private sector, where employment rose 140,000 after increasing 117,000 in October.

2. Government employment fell by 20,000. Public payrolls have dropped in 10 of the past 11 months as state and local governments have tightened their belts.

3. Outside of government, job gains were almost across the board, with retail surging 49,800.

4. Elsewhere, construction payrolls fell 12,000 after losing 15,000 jobs in October. Factory jobs edged up 2,000, with most of the gains coming from automakers.

5. Health care and social assistance hiring rose 18,700 after adding 30,300 job in October. Temporary hiring — seen as a harbinger for future hiring – increased 22,300 after adding 15,800 jobs last month.

1. The red flag here is the sharp drop in the size of the labor force versus October. The participation rate fell from an already low 64.2 percent to 64.0 percent. In a strong jobs recovery, that number should be rising as more people look for work. If the labor force participation rate were back at its January 2009 level, the U-3 rate would be 11.0 percent.

2. As it is, the broader U-6 rate — which includes part timers who wish they were full timers — is still a sky-high 15.6 percent, down from 16.2 percent last month.

3.  The broadest measure of employment is the employment/population ratio and it rose to 58.5 percent from 58.4 percent. But as MKM Partners notes: “The employment/population ratio has averaged 58.4 since December 2009, meaning there has essentially been no real progress on employment in two years’ time. …  In other words, we are not growing fast enough to reduce the so-called output gap/labor market slack.”

4.  The workweek was flat, at 34.3 hours in November, but aggregate hours worked actually fell 0.1 percent  after two months of relatively strong gains. (MKM)

5. Nominal wages also slipped in November for the first time since August. MKM: “The product of hours worked and wages paid is a proxy for nominal income, and it has decelerated to a 2.6% annualized rate over the last six months from just over a 4% rate this summer (prior to the sharp tightening in financial conditions). … While the economic data have been better of late, we remain concerned that we are seeing a bounce back from a series of supply shocks earlier in the year that may not be sustained against the foliage of tighter financial conditions, a deep recession in Europe and a sharp slowdown in China and emerging-market countries.”

6. We  may not have seen the last of the unemployment 9-handle given a likely growth slowdown next year. As IHS Global Insight notes:

Third-quarter GDP growth was revised down to 2.0% only because inventories fell. Very lean inventories will support future production growth, in order to keep pace with sales. We have upgraded our fourth-quarter growth forecast to 2.6%, from 2.0%. But we still expect growth to slip back into the 1.5–2.0% range in 2012. Domestic fiscal policy remains contractionary, slower global growth will weigh on exports, and the Eurozone financial crisis will mean at least some tightening of credit conditions in the United States. But the better recent domestic news means we have upgraded 2012 growth to 1.8%, from 1.6% (2011 growth now rounds down to 1.7%, instead of rounding up to 1.8%).

7. This chart from MKM illustrates how tightening financial condition may well drag on the labor market going forward:




9 thoughts on “November jobs report: 7 reasons why it’s better but still terrible

  1. I wonder if the dropping participation rate is rather part of a long term trend. From 1948 until June of 1968, it never exceeded 60%, finally crossing 60% permanently in July 1971. From there it climbed to a peak of 67.3% in March 2000. It has been receding from that peak ever since, slowly at first, (even leveling off for a few years starting in mid 2003), before dropping more rapidly beginning in late 2008.

  2. The data has continued to outpreform those who predict these trends for over a year now and noone either notices or cares. The participation rate is going to drop or stay close to its current level until the baby boomers get out of the work force then we will have an idea of whatthe real numbers are. The previous gentlemans comment and numbers illustrate that pretty well. Additionally the forcasts of a double dip recession just seem unnecessarily dreary considering the steady if slow recovery.

  3. Participation rates of above 60% came about because more women joined the workforce. It has nothing to do with the baby boomers.

    Current overall participation rates mask the fact that the male workforce participation rate is exceptionally poor.

  4. labor force, participation rate 2007, 66%.
    us budget was 2.73 trillion.

    here we are, now…
    actual labor force is 4.5% smaller, nominally, and they just have to hold up a federal budget that is 40% larger.

  5. Counterpoint to those saying it’s the retiring Boomers that’s driving the labor-force participation rate down:

    There’s a broader measure of those not in the labor force but who want a job than the “marginally-attached” measure that’s part of both U-5 and U-6, the total number not in the labor force who want a job now. Unlike the “marginally-attached” and “discouraged worker” measures, not only does it capture the growing number of people who haven’t bothered with the labor market for over a year (important because the average stint of unemployment is now over 9 months), but it is seasonally-adjusted.

    Adding that to the officially-unemployed, then dividing the sum by the sum of those in the labor force and those not in the labor force but who want a job, yields the percentage of the potential labor force who don’t have a job. One can think of it as U-5+, and unlike the “marginally-attached” part of U-5, it can be (and in this comment, is) fully-adjusted for seasonal variations. For November, it was 12.40%. While that is better than October’s 12.64% and November 2010′s 13.29% (the worst since this measure can be calculated – 1994), it still is higher than any point before May 2010.

    One could also create a “U-6+” metric by adding in those forced to part-time work due to economic conditions. That would yield a November 2011 number of 16.81%, which is still higher than any point before April 2010.

    • I should correct the “average stint on unemployment” stat. The mean is over 9 months (partly because the BLS now has options to list unemployment length of between 2 and 5 years, when before 2011 it was capped at 2). The median is roughly 5 months (21.6 weeks in November), and has been since the end of 2009.

      It’s also important to note that before the current recession (no, not past despite what the NBER says), the record median length of unemployment was 12.3 weeks in May 1983.

  6. Anyone who doesn’t understand why the labor force is dropping surely has NOT been paying attention to the mess Social Security is in.

    America’s population is aging and the death rate among the aged is less than the retirement rate.

    Blunt, but it’s no more complicated than that.

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