This article originally appeared in The Daily Capitalist.
This morning’s BLS job reports came out showing unemployment down from 9.8% to 9.4%:
What was disappointing to the market was that nonfarm payrolls were only up 103,000, well below the consensus expectation of 160,000 new jobs. The decline in unemployment is seen as an aberration because it was due in part to a drop in the labor force which amplified the number of job holders as a percentage of the overall labor force.
Here are the specific data from the BLS:
Private sector payrolls increased 113,000 in December, following a 79,000 advance the month before. The consensus expected an 180,000 boost.
For the latest month, strength was in private service-providing jobs which rose 115,000 after an 84,000 increase in November. Good-producing jobs declined 2,000, following a 5,000 decrease in November. In December, manufacturing grew 10,000; construction fell 16,000; and mining rose 3,000. Government jobs fell 10,000, following an 8,000 dip in November.
Within private services for December, leisure and hospitality increased by 47,000 while health care rose 36,000. Also, professional & business services gained 7,000 and were led by temp hiring, up 16,000.
Health care employment expanded by 36,000 in December and by 266,000 in all of 2010. Over the month, employment continued to rise in several health-related services, including outpatient care centers, hospitals, and nursing and residential care facilities. Employment in temporary help services also continued to trend up in December and has increased by 495,000 since a recent low in September 2009.
Manufacturing employment was little changed over the month. Following modest job growth earlier in 2010, manufacturing employment has been relatively flat, on net, since May.
The drop in government jobs was led by a 20,000 fall in local government, with non-education declining 12,000. Federal employment increased 10,000 while state government jobs were unchanged.
Average earnings went up 1.8% for the year, but that was offset by a rise in the CPI-U of 1.1%. The workweek declined slightly by 0.1 hour in December but was 1.5 hours above the low point of 38.7 hours in June 2009.
Here is what concerns the government (from the BLS report):
The number of unemployed persons also declined over the month, from 15.0 million to 14.5 million, largely reflecting a decrease in the number of unemployed adult men. Among the unemployed, 44.3 percent had been jobless for 27 weeks or more in December, up from 40.1 percent a year earlier.
The labor force participation rate edged down in December to 64.3 percent and was slightly lower than a year earlier (64.7 percent). The number of persons working part time who would have preferred full-time employment was essentially unchanged in December at 8.9 million. The number of discouraged workers grew over the year by 389,000 to 1.3 million in December (not seasonally adjusted). Discouraged workers are persons outside the labor force who are not looking for work because they believe their job search efforts would be unsuccessful.
As noted in an accompanying Wall Street Journal article:
The unemployment rate has now been above 9% since May 2009, or 20 months. That is the longest stretch at such an elevated level since the Second World War. In the recession of the early 1980s, the jobless rate rose to 9% in March 1982 and remained above that mark until September 1983.
There are some 1.5 million people unemployed for more than 99 months now.
Look at the data table for U-1 through U-6.
The big drop in the overall unemployment rate and the U-6 measure was primarily due to a decline in the number of unemployed, which fell by 556,000 in December. That’s good news since the number of people who are employed increased by nearly 300,000. But that still leaves over 250,000 workers leaving the labor force altogether. That likely means a substantial part of the drop was due to workers giving up. Anyone unemployed over 99 weeks has no access to unemployment benefits and many lose access even earlier. Once those benefits expire, the unemployed may stop considering themselves part of the labor force.
And once they completely drop out of the labor force, they aren’t counted in the data.
How long will it take to get back to “normal” unemployment? See this calculation by Sudeep Reddy of the Journal’s Real Time Economics blog:
The economy lost almost 8.4 million jobs from December 2007 to December 2009. It added 1.1 million jobs in 2010. At December’s pace, just replacing the rest of those lost jobs would take 70 more months — roughly six years, taking us to November 2016. That would be almost nine years from the start of the recession for U.S. payrolls to return to where they peaked before the downturn.
But the economy also needs to add 100,000 to 125,000 jobs a month just to keep pace with growth in the labor force. That means the gap created since the recession started was closer to 12 million jobs (leaving 11 million after the gains in 2010). The U.S. unemployment rate is unlikely to move much lower if job gains continue only at December’s pace. Even employment gains close to October’s pace (210,000 jobs) would take us into the next decade before seeing the unemployment rate back near 5%.
Bill McBride at Calculated Risk puts out this chart on employment level and duration per Post-WWII business cycle. I’ve used it before and here is the latest version:
There are other indices of employment that came in this week, ADP, Monster, plus the job cut report, which all appeared favorable, especially the ADP report which had its biggest ever jump in private employment of 295,000 jobs. But these reports for various reasons rarely tally with the BLS’s report (there are perhaps technical reasons why ADP’s dramatic jump is inaccurate). So I wait for the BLS rather than trumpet good, but ephemeral, news.
Here is the wrap. The employment situation is still very bad. It brings up the specter of long-term structural employment in our economy. Job growth is still weak, buoyed by temp and health care workers. There are some positives in this report but job growth is still insufficient to overcome layoffs and a growing labor force. Some of the gains are technical in nature, and I expect unemployment to go up again in the next few months. The traditional drivers of growth, manufacturing and services (other than health care and temp) are still mostly flat. It appears that the Fed will continue its destructive monetary policy as long as unemployment remains high. It is conceivable that we are looking at another 5 to 10 years of sluggish job growth and a stagnant economy as a result of government fiscal and monetary policies.
There is always good news, and if the Republicans can effect change by repealing Obamacare, making meaningful reductions in the federal budget, and rein in the Fed, that would help long-term economic prospects. It was interesting to note that Speaker Boehner was quoted in a letter to Ben Bernanke about quantitative easing:
House Speaker John Boehner of Ohio, then the minority leader, and three other Republicans voiced “deep concerns†in a Nov. 17 letter to Bernanke about a policy that they said may undermine the dollar and create asset price bubbles.
If that is not an “Austrian-ish” statement, then what else? I would attribute that kind of language to Ron Paul’s influence.
I have little faith in politicians, including the Republicans other than the Ron and Rand Paul, to do anything but political eyewash. Believe your eyes, not your ears.
