Friday, November 08, 2013 - Jobs, Jobs, Jobs Friday

Jobs, Jobs, Jobs Friday

by Sinclair Noe

DOW + 167 = 15,761
SPX + 23 = 1770
NAS + 61 = 3919
10 YR YLD + .14 = 2.74%
OIL + .13 = 94.33
GOLD – 19.10 = 1289.50
SILV - .17 = 21.60

Another record high close for the Dow. For the week, the Dow rose 0.9 percent, the S&P 500 was up 0.5 percent while the Nasdaq was down 0.1 percent.

Today was all about jobs. The Bureau of Labor Statistics reported that total nonfarm payroll employment rose by 204,000 in October and the unemployment rate increased from 7.2% to 7.3%. The 204,000 new jobs was much better than the estimates of about 120,000.

Further, the numbers from previous months were revised higher; September was revised from 148,000 new jobs to 163,000 new jobs, and August was revised from 193,000 jobs up to 238,000; for a net gain of 60,000 upwardly revised jobs.

So, why did the unemployment rate move higher? Part of this may have to do with the government shutdown and there might be a reversal in the November numbers. The furloughed government workers, at least some, were likely counted as unemployed with regard to the unemployment rate, but for the total number, that 204,000 number, those furloughed workers were not counted as unemployed.

The problem with the unemployment rate is that the rate can fall even when the labor market conditions get worse. There are two possible reasons why the unemployment rate drops; either more jobless people find work, or more jobless people get discouraged about their prospects and drop out of the labor force. Again, last month's increase in the unemployment rate was probably due to workers furloughed during the shutdown, and might be a one month aberration in the rate. One mystery buried in Friday’s report was a drop of 720,000 in the size of the labor force and the ensuing fall in the labor participation rate to 62.8 percent, a 35-year low. I haven't heard a good explanation for this, other than distorted data as part of the shutdown, but it would explain why the unemployment rate didn't drop further.

The Participation Rate looks at the number of working age people who are looking for work.The Labor Force Participation Rate dropped to 62.8% in October from 63.2% in September; that's a fairly substantial decline; again, this was at least partly related to the shutdown. The participation rate is still well below the normal rate, which is closer to 66% or 67% over the past 20 years.

If someone stops looking for work, they are not counted in the Participation Rate. There are just over 4 million workers who have been unemployed for more than 26 weeks and they still want a job. According to the Bureau of Labor Statistics, there are 2.3 million people among those who have dropped out of the labor force who wanted and are available for work. These individuals are not counted as unemployed because they have not searched for work in the previous four weeks. At a certain point, if the worker becomes discouraged, they become invisible. If all of these workers had been counted as part of the labor force, the unemployment rate in October would have been 8.6 percent instead of 7.2 percent, a major difference.

Meanwhile, the Employment Population Ratio dropped to 58.3% in October from 58.6% in September. The Employment Population Ratio doesn't look at whether a potential worker is discouraged or not; just if the person is of working age and whether they have a job or not. So, while the unemployment rate has dropped from a high of 10% back in October 2009 down to 7.2% in September, the Employment Population Ratio paints a very different picture; the Ratio was at 62.7% in December 2007 and dropped down to 58.3% last month, basically flat for the past couple of years.

Now a Ratio of 58.3% is really pathetic and this would seem to be a loud call for increasing aggregate demand stimulus. This is not happening, or at least we can say Washington isn't listening.

Part of the reason for the low Employment Population Ratio is that the Baby Boom generation is moving into retirement, so there is a demographic shift at play. So, we can look at the ratio excluding the people who are moving into retirement, by focusing only on workers in the 25 to 54 age range. Here the ratio was at 79.7% at the beginning of the economic downturn, dropped to a low of 74.8% in December 2009, and only recovered to 75.4%. So, again, we have another indication of a weak labor market.

There is still another measure to consider, and it looks at the unemployed, the discouraged unemployed, and the under utilized worker (someone working part time who wants to go full time); this is called the U-6 and it stands at 13.8%, up from 13.6% in September. The number of people employed part time for economic reasons increased from 7.9 million in September to just over 8 million in October.

We’re still 1.5 million jobs short of the peak employment level of January 2008. Wages are rising at a slow rate, up about 2.2 percent in the past 12 months, and too many people are unemployed or underemployed.

The private sector has steadily added jobs since early 2010 while the public sector has steadily cut them, which doesn't usually happen in an expansion. Since May 2010, the government sector has cut 1.1 million positions. But the government job-letting is coming to an end. In October, as might be expected, the federal government reduced its payrolls by 12,000. In the past year, the federal government has cut direct employment by 94,000, or 3.3 percent, but state and local government added a combined 4,000 jobs. In the past year, they have added a combined 68,000 positions. Modestly rising activity at the state and local level is counteracting, and almost entirely offsetting, the austerity-inducing actions of the federal government.

As in the past, the October report closely correlated jobs with education. While the unemployment level for workers over 25 with less than a high school degree rose to 10.9 percent in October from 10.3 percent in September, joblessness among college-educated Americans inched up to a modest 3.8 percent from 3.7 percent in the prior month. Similarly, the participation rate for the most educated workers stood at 75 percent, compared with 44.7 percent for the least educated ones.

The next jobs report, covering the month of November, should give us a slightly cleaner picture without distortions from the shutdown. On a seasonal basis, retail companies start hiring for the holiday season in October, and usually pick up hiring in November. Of course, retailers keep moving the shopping season earlier and earlier. Retailers added 44,000 jobs in October, an indication that consumer spending was steady.

Despite the housing turnaround, employment has improved only modestly in that sector. Construction employment rose to 5.8 million in October from 5.6 million a year earlier. But before the recession hit, employment in that sector had climbed as high as 7.7 million. Service industries have driven job growth in the recovery, adding 2.1 million jobs over the past year, 177,000 last month alone. The leisure and hospitality sector (restaurants, bars and hotels) added 53,000 positions last month. Manufacturers added 19,000 jobs, the sector’s best showing since February, helped in part by strong auto sales.

The Federal Reserve has one more jobs report before their scheduled FOMC meeting in December. If the labor market improves from here it would greatly increase the odds of tapering at that meeting. The jobs report won't be the Fed's only consideration. 

Toss in yesterday's Commerce Department Report showing the economy grew at a 2.8% pace in the third quarter. Or this morning's Commerce Department report showing personal income increased 0.5% in September from the previous month. It was the second-straight month of growth at that rate, which has been the best pace since February. Despite having more money in their wallets, consumers didn't open them more in September. Consumer spending increased 0.2%, down from the 0.3% rate in August. The personal savings rate rose to 4.9% in September, from 4.7% the previous month. It was the highest rate of the year, though still historically low. The slower growth in consumer spending helped keep inflation in check. The so-called core rate over the previous year held at 1.2% in September, well below the Fed's target of 2%.

And remember the story about the recovery of Fannie Mae and Freddie Mac? They will pay back their bailout money by the end of the year. And then there's the story of Twitter, which is a reminder that there is still a healthy dose of entrepreneurial talent in America. Twitter was founded 7 years ago with nothing and yesterday the market cap topped $32 billion. And remember the major market averages hit record highs this week; and all this happened in the face of the sequester, the shutdown, and general political dysfunction. Imagine what might happen if government got its act together, or at least stopped making it more difficult for businesses to do their thing.