Jobs Recovery Will Be a Long Slog

The civilian labor force, which peaked at 154.9 million in October 2008, has declined 1.82 million since, with the most rapid drop coming in the past three months. Half of this decline has occurred in the past three months, a historic extreme that hasn't been seen since the Great Depression.

The Labor Department announced this morning that 589,000 jobs were lost in December. The official unemployment rate remained at 10.0%, as the civilian labor force also shrank by an even larger number, 661,000.

November employment numbers were revised downward to 139,000 jobs gained, changed from the original report of 227,000 jobs gained. The average number of weekly hours worked remained unchanged at 33.2.

A related data point is the number of unemployed, which decreased by 73,000. If you are paying attention, you will be uttering a big "huh?" at this point. Hundreds of thousands of jobs were lost and unemployment improved? This results from the polling practices of the Labor Deparment. If someone who is not employed has not actively looked for work in the past four weeks, they are not included in either the unemployed ranks or the civilian labor force. The high number of such discouraged workers not being counted is making the reported unemployment rate much better than it actually is.

The headline number that most reports will feature is the total non-farms payroll. For December this was reported as a loss of 85,000. November saw an increase of 4,000 payroll jobs, revised from a decline of 11,000 reported last month. This report had surprised many analysts, who had projected larger declines between 40,000 and 80,000. October payrolls were also revised, but in the opposite direction of the November revision. The net change for the two months of revision was only 1,000 additional jobs lost. The average change for the three months October through December was 69,000 payroll jobs lost per month.

Two months ago, my review of the October data was published here at TheStreet.com. With the December report this morning, the glimmers are little changed. Because of the large uncertainty introduced by the survey sampling techniques of the Labor Department, four-month moving averages are used in my analysis, along with linear and quadratic trend lines. The updated graph above for non-farms payrolls is shown below. It can be seen that the promising trend shown two months ago is continuing. The year-over-year rate of employment decline is getting better. This is a second derivative improvement.

The total employment number is larger than the non-farms payroll because the former includes a number of people who are not covered in the latter: self-employed, 1099 Form sub-contractors, people working for mom and pop operations, etc. The following graph shows the 12-month change in total employment. Although not as strong, the second derivative improvement in total employment is also intact.

We have been using for-month moving averages of the monthly changes to project when employment gains may again return. The graph below shows that projection similar to two months ago. Payroll jobs gains are projected for late first quarter or early second quarter. The total employment projection is for jobs growth by the third quarter.

It should be kept in mind that about 125,000 new jobs each month are needed just to keep up with population growth. If we do permanently cross the "zero line" in the projected time-frame, we still need to grow job formation further to get to the real "zero level" that keeps up with population growth. Once that is achieved, we can go to work on the 8.8 million jobs lost in this recession plus the 3 million new jobs that would have been added had we kept up with population growth the past two years. That is 11.8 million new jobs needed in addition to the 1.5 million a year just to keep up with population growth.

If we could average 290,000 jobs growth a month for six years we would get back to employment levels per capita that existed in 2007. If we start in 2010, we get there in 2016. Talk about a long slog!

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, PiedmontHudson.

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