The employment situation is clearly bad, but also improving.
The widely ballyhooed adjustment to past non-farms payroll numbers of 930,000 additional non-farm payroll jobs lost is much ado about nothing. This adjustment applies to the data for April 2008 through March 2009 and has nothing directly to do with such things as the unemployment rate calculation and total employment levels.
The U.S. Department of Labor (DOL) is correcting adjustments made for assumed new business formation.
has published an estimate that another adjustment of nearly a million additional payroll job losses will be necessary in February 2011 for the 12 months which end next month. It is not clear if this estimate is still valid.
The DOL just announced new adjustments to the birth/death model for estimating business creation/closings that were applied this month for the first nine months of the current period. These adjustments for April through December 2009 total 434,000 additional payroll job losses.
Glimmers of Hope for Employment
The unemployment data is mixed, but
are still there this month. A brief summary of the mixed data would include (with details to follow):
1. The official unemployment rate has improved from 10.1% in October to 9.7% in January. This is not a significantly significant change due to +/- 300,000 sampling error uncertainty in the DOL data, but the rate has remained below the October peak for three months now, which is significant.
2. Temporary employment is up 247,000 from a low in September. Using more temps often precedes adding permanent new positions.
3. Manufacturing jobs increased by 11,000. This is associated with inventory building.
4. The average work week increased to 33.3 hours for production workers. The low was 33.0 hours last seen in October.
5. Average overtime hours for manufacturing workers was 3.5 hours per week. This is an increase of 26% from the low of 2.6 hours in March 2009.
6. Part-time for economic reasons ("forced" part-time) declined by 10% from 9.2 million to 8.3 million. Most of this change was in the category of decreased slack in business conditions for existing employees. The number who could only find part part-time work was unchanged at 2.3 million.
7. The weekly initial unemployment claims are still tracking the curve for a normal jobs recovery.
1. Government employment decreased by 8,000 in January, despite a surge in Census Bureau temporary hiring. State and local payrolls decreased by 41,000.
2. Non-farm payrolls continue to decline, although at a low rate.
3. The unemployment rate remains high.
4. The shortfall in employment remains at historic levels, between 11 and 12 million below what would be expected for an economy experiencing the average job growth seen from1999 to 2007.
5. The four-week moving average of weekly initial unemployment claims has increased by 6.4% over the past three weeks.
6. We are missing 2.8 million people from the civilian labor force over the past nine months.
7. Permanent job losses and historic levels in duration of unemployment are still burdens.
Employment peaked at 146.7 million in November 2007. In December 2009 it had declined to 137.8 million. January saw an increase of 541,000 to 138.3 million. That is a decline in employment of 8.9 million as of December before rebounding to a loss of 8.4 million in January. All numbers are seasonally adjusted.
The not seasonally adjusted data produced a loss of 1.1 million jobs from December to January and 10.3 million jobs since November 2007. Lots of people talk about seven million jobs lost in this recession, but they are not using the official numbers from the U.S. Dept. of Labor.
However 8.4 million job losses is only part of the story. For the years 1999 through 2007, an average of more than 1.5 million were added to the employment rolls each year. This average includes two years with employment growth in the 300,000 range and one year (2001) with a loss of 1.5 million, so it is a representative (not inflated) average.
That means that employment should have grown by 3 million during this time if we had "average" economic conditions rather than recession. That puts the effective increase in unemployment between 11 and 12 million compared to what it would have been in an average economy.
The Declining Labor Force
The civilian labor force has declined by 1.8 million from a peak in March 2009 of 155.0 million to 153.2 million in January 2010. Some have suggested that this might be due to a decline in illegal immigrants, but that is unlikely because the labor force identified as Hispanic or Latino has increased by 400,000 from 22.2 million in March 2009 to 22.6 million for January.
The decline of 1.8 million in the civilian labor force is not the whole story, because from 1999 through 2007 the labor force grew by an average of 1.5 million a year. That includes two years (2001 and 2002) during the previous recession that had an average increase per year under a million.
Normally we would have expected an increase of the order of a million from March 2009 until now. That puts the labor force shrinkage at something at least as large as 2.8 million in nine months. This is unprecedented in recorded history, as shown in the following graph
Rising Weekly Initial Unemployment Claims
The four-week moving average for weekly initial unemployment claims for the third week in a row. On Jan. 9, it was 440,750 and 468,750 in the latest report for Jan. 30. That is a non trivial increase of 6.4%. As
, this rise remains well within the parameters of unemployment claims in previous recoveries.
However, if we get another 5% increase in weekly initial jobless claims in the coming weeks, the current unemployment behavior will move out of the range of the well behaved employment recoveries and into the realm of the jobless recoveries of the recessions ending in 1970, 1991 and 2001.
When Will We Start Gaining Jobs?
The rate of change indicated by four-month moving averages now projects that we will cross the zero line for employment growth in the first quarter, as shown in the following graph. This is an improvement from a projections made in previous months that the crossover to employment growth would occur in the second or third quarter.
While the number of employed may start to grow, the unemployment rate may not improve significantly in 2010. As the 2.8 million people now missing return to the labor force, plus the additional 1.5 million new workers statistically expected to be added per year, the first four million added to employment will be largely offset in calculating the unemployment rate.
The situation will have to improve for a long time before the unemployment rate drops from the vicinity of 10%.
For investors, as employment increases, more money will be earned for consumption and that will support GDP and help such sectors as consumer staples and food and recreation.
The broad market should also gather support if employment starts growing at 100,000 a month or more.
Some ETFs to follow as this unfolds include the
Financial Select Sector SPDR
Consumer Staples Select Sector SPDR
Consumer Discretionary Select Sector SPDR
Industrial Select Sector SPDR
Technology Select Sector SPDR
At the time of publication, Lounsbury did not have positions in any of the equities mentioned. John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.
Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,