Jobs Report Overview - Analyst Blog
The total number of people employed rose by 120,000 in November. That is slightly worse than consensus expectations for a gain of 123,000.
This report was weaker than the very robust ADP report on Wednesday. That report showed 206,000 private sector jobs created. The expectation was for the BLS to show 141,000 new private sector jobs. The "actual" BLS number of private sector jobs was 140,000.
Behind the Headline Numbers
Government payrolls declined by 20,000. Federal government employment fell by 4,000 jobs (more than all of those from the post office). The state-level jobs dropped 5,000 and the Local levels laid off 11,000. The pace of government lay offs rose from last month when a total of 17,000 government jobs were lost (revised from a loss of 24,000). The unemployment rate, which is derived from a separate survey, fell to 8.6%. The consensus was looking for it to be unchanged.
The Household survey was noticeably more upbeat than the establishment survey, pointing to a gain of 278,000 jobs. This is the fourth month in the row of sharp job gains according to the household survey. It has shown a total of 953,000 jobs gained over the last three months.
The Civilian Participation rate fell to 64.0% from 64.2% for the month, and is down from 64.5% a year ago. This means that the drop in the unemployment rate for the month is in part a statistical illusion -- as is the drop in the unemployment rate from a year ago, when it was 9.8%. About half of that drop is a mere statistical artifact coming from a small percentage of the population actually being in the workforce.
The participation rate is just above the 27-year low it set in July. The percentage of people over the age of 16 who actually have jobs rose slightly to 58.5% from 58.4% (employment to population ratio, or the employment rate). That is the fourth month in a row it has increased. However, it too was coming off of a 27-year low in July. The employment rate was higher than the year-ago level of 58.2%.
Healthy Upward Revisions
While this month's employment gains from the establishment survey were slightly below expectations, that is more than made up for by very large upward revisions to the August and September numbers. In September, we "actually" gained 210,000 jobs, not the 158,000 reported last month, or the first look, which showed a gain of just 103,000. In October, we gained 100,000, not the 80,000 jobs we thought last month.
The upwards revisions were a very positive sign. The upward revisions came mostly from the private sector. The private sector revisions were for both months. In September, a total of 220,000, not 191,000 jobs estimated last month, were gained. In the first report, just 137,000 private sector jobs were estimated to have been gained. In October, 117,000 private sector jobs were added, not the 104,000 reported last month.
The government lost 17,000 jobs, not 24,000 in October. In September, it lost 10,000 jobs, not the 33,000 reported last month. Thus, if one adds the revisions to the job gains for November, we have 182,000 more people working today than we thought we did yesterday. On the private sector side, the gain is 195,000.
The unemployment rate is derived from a separate (household) survey from the total number of jobs (establishment) survey. The household survey was much more upbeat than the establishment survey, as it has been for most of the year so far, with a gain of 277,000. It showed a gain of 398,000 jobs in September. In August, it showed a gain of 331,000 jobs.
The household survey numbers do not get revised. However, generally the numbers from the household survey are considered less reliable than are the numbers from the establishment survey. That does not mean they should be disregarded entirely, and the divergences between the two series are often the biggest near turning points in the economy. The household survey does a much better job of picking up people who are self-employed, and of very small start up businesses than does the establishment survey.
Unemployment Rate Tumbles
The unemployment rate fell to 8.6%, down from 9.0% in October, 9.1% in September and 9.8% a year ago. Some of the drop is a statistical illusion, but not all of it. The civilian participation rate, or the percentage of people in the labor force, both employed and unemployed, fell to 64.0%, matching a 27-year low set in July. The participation is down from 64.5% a year ago.
The employment to population ratio, or the employment rate, rose for the fourth month in a row, rising to 58.5% from 58.4% in October. The July level of 59.0% number was the lowest since July 1983. It was at 58.2% a year ago. A fall in the participation rate makes it easier for the unemployment rate to fall.
It is also true that the drop in the unemployment rate from 9.8% a year ago to the current 8.6% is in large part an illusion caused by the fall in the participation rate from 64.5% to the current 64.0%. If the participation rate were the same as last month, the unemployment rate would have been between 8.8% and 8.9%, rounding to 8.9%. If it were the same as a year ago, the unemployment rate would be 9.3%. Still an improvement, but less than the headlines would suggest.
A fall in the unemployment rate from a falling participation rate is not really such great news. The graph below shows the participation and employment rates (left scale) along with the unemployment rate.
For all employees, the length of the average work week was unchanged at 34.3 hours. A year ago it was at 34.2 hours. For production and non-supervisory employees, the length of the average workweek ticked down to 33.6 hours from 33.7 hours in October, but matching it September level. It is up slightly from 33.5 hours a year ago.
While a rise of an average of 6 minutes per week over the last year might not sound like a big deal, multiply it by the 131.708 million workers in the economy (establishment survey), and yes, it is a big deal (to the extent it was really a six minute increase and not smaller due to rounding). The very flat trend in average hours over the last year or so is extremely strong evidence that the overall anemic job growth is not due to excessive regulatory fears.
Average Hourly Earnings
Average hourly earnings for all employees fell to $23.18 from $23.20 but are up 1.84% from $22.76 a year ago. Average hourly earnings for production employees rose $0.02 to $19.54 for the month, and is up 1.56% from $19.24 a year ago. The year-over-year changes are well below the rate of headline inflation over the last year, so in real terms, wages are moving backwards.
Income growth in the middle and lower half of the income distribution has been sorely lacking, not just recently, but for over a decade. Higher incomes for those who are working means higher sales and/or more quickly repaired household balance sheets. Slow growth or actual declines mean lower sales and/or less progress on balance sheet repair.
The anemic growth in average hourly earnings is not a good thing for the economy, although it is good news for corporate profits, and hence the stock market, at least in the short term (see "The 'Jenga' Metaphor" ). It also means that it will be tough for a generalized increase in overall prices (aka inflation) to occur, as opposed to increases of relative prices of highly visible prices such as food and gasoline.
Duration of Unemployment Worsens
One significant negative aspect of this report is renewed deterioration on the duration of unemployment problem. Half of all the unemployed have now been out of work for 21.6 weeks, an awful level, and worse than the 20.8 week figure of last month, and just slightly below the 21.7 week level of a year ago. For perspective though, prior to the Great Recession the highest the median duration of unemployment had ever reached was 12.3 weeks, near the bottom of the recession of 1982-83.
Since the definition has changed, the comparisons based on the average duration of unemployment over the long-term are less meaningful, but it rose to 40.9 weeks from 39.4 weeks in October. A year ago, under a definition that maximized the length of unemployment at two years rather than the five years now "allowed" the average duration of unemployment was 33.9 weeks.
Participation Rates Falling
While the unemployment rate is better a year ago, part of that is a mirage due to falling participation rates. Still, significant progress has been made over the last year, with a net gain of 1.878 million private sector jobs gained. Unfortunately, when one factors in the continual bleeding of public service jobs, the total employment gains over the last year fall to 1.600 million total jobs gained.
We also saw a big improvement in the underemployment rate (U-6 for you wonks out there) to 15.6% from 16.2% last month and 17.0% a year ago. If we were in normal times -- rather than trying to dig out of a deep hole -- it would be an impressive performance. Unfortunately, we are not in normal times.
The Takeaway: Very Positive Results
Overall I consider this to be a very positive report, mostly due to the upward revisions to the previous months and the even stronger household survey job gains, not due to the big drop in the unemployment rate per se. However, I would caution it appears that the jobs being created look to be mostly at the low end, with the unemployment rate staying unchanged at 4.4% for college grads, but dropping very sharply, both for the month and year over year for both high school drop outs and High School grads without any college. Still, a job is a job, even if it is of the burger flipping variety.