Friday, December 2, 2011

Traction on the Jobs Front... Headline vs. Actual

First the (very strong) "headline", then the details.


The WSJ with the headline:
The U.S. labor market strengthened in November as private employers continued to add jobs at a healthy pace, while the unemployment rate fell to its lowest level since March 2009.

Nonfarm payrolls rose by 120,000 last month, the U.S. Labor Department reported Friday in its monthly survey of employers. Private companies added 140,000 jobs, while the public sector—federal, state and local governments—lost 20,000 jobs.
The unemployment rate, obtained by a separate survey of U.S. households, fell to 8.6% in November from 9.0% the previous month. The rate hadn't been below 9% since March, when it was 8.8%. The rate is now lower than at any point since March 2009, when it was 8.6% as well.
In another positive development, October's figure for nonfarm payrolls was revised upward to show a gain of 100,000 from a previously reported 80,000, while September was revised up to a 210,000 gain from 158,000.
The chart below shows the good news... an improving job market with declining unemployment and underemployment.


Now the details...

A improvement in the sense that jobs are being added, but a bifurcation between the "haves" (those getting jobs) and "have nots" (those so disgruntled they are leaving the workforce completely). Notice the huge spike in the number not in the labor force. In other words, the unemployment rate dropped not only due to an increase in the number of individuals employed, but also due to the number no longer counted as unemployed because they have dropped out of the labor force. Also notice the huge split between men (getting jobs) and women (losing jobs and leaving the job market). No clue what is going on there...


A better picture emerges when viewed as a percent of the total population of individuals qualified to work. The chart below shows the number in the labor force as a percent of that broader population, as well as the number employed. The good news is we continue to see stability in the employment to population ratio (i.e. jobs are growing at the rate of population), the bad news is that rate has been stagnant and remains near a 30 year low. The other concern is that the number of people participating in the job market continues to decline, so unemployment could present a long term issue even if the economy bounces back (those that left the workforce may find themselves unqualified to return).


If the above trend continues, expect the unemployment rate to continue to decline regardless of whether the job market improves. The good news is that this will result in a positive headline each month. It will be interesting to see if that headline helps with confidence, which makes a the recovery self fulfilling.

Source: BLS