Friday, January 10, 2014 - Jobs Report Friday

Jobs Report Friday

by Sinclair Noe

DOW – 7 = 16,437
SPX + 4 = 1842
NAS + 18 = 4174
10 YR YLD - .10 = 2.86%
OIL + 1.23 = 92.89
GOLD + 20.90 = 1248.60
SILV + .63 = 20.27

Jobs report Friday. The US economy created only 74,000 net new jobs in December. The number of jobs created was the lowest in 3 years and was well short of expectations for about 195,000 jobs. In the four months before December, the average number of jobs created in the US was 214,000 a month. The Labor Department said 38,000 more jobs in November were created than the 203,000 previously reported.

And the unemployment rate dropped from 7% to 6.7%.

If that doesn't seem to add up, you are correct. The headline news that the unemployment rate dropped to 6.7% is not good. The problem is that a bunch of people fell out of the labor force, 347,000, to be exact. They stopped looking for work, which made them no longer "unemployed" in the eyes of the Bureau of Labor Statistics; they just become invisible.

The Labor Force Participation Rate dropped from 63% in November to 62.8% in December. This is a measure of the working age population in the labor force. The participation rate is well below the 66% to 67% range that had been considered typical over the past 20 to 30 years. The participation rate has been dropping for the past 12 years.

Part of the reason for the drop in the participation rate is due to the Baby Boomers retiring, but that's just part of it; and actually many boomers are staying in the work force, unable to retire after the financial crisis of 2008. The bigger problem is that the economy is not strong enough to create enough jobs to keep or bring people into the labor force. Not just boomers, but also younger people are leaving the labor force, or never getting in. Many younger people are in school and not counted as part of the labor force, while others are probably just hanging out, plotting how to overtake this flawed economic system that has failed them.

So, when we look past the young people who can't get a job and the older people who are retiring whether they can afford to or not, we turn to the 25 to 54 year olds, the meat and potatoes of the labor force; The 25 to 54 participation rate declined in December to 80.7% from 80.9%, and the 25 to 54 employment population ratio increased to 76.1% from 76.0%. So, for many people in their prime earning years, there just isn't work to be found. And if they find work, it takes a while to get up to speed on wages. It now takes the average worker until age 30 to earn the national median salary; young workers in 1980 reached that point in their careers at age 26. This has significant implications for financial prosperity later in life.

So, we had very weak growth in new jobs, just 74,000 and the unemployment rate dropped significantly from 7% to 6.7%.

Women gained, on net, 75,000 jobs in December; men lost, on net, 1,000 jobs. This was the first time since December 2007 that a month’s job gains were captured entirely by women. Women represented 56% of the net gain in the 12 months. Women also suffered far fewer job losses during the downturn, partly because men are more likely to work in industries very sensitive to the business cycle. Also, because women are generally paid less than men to begin with. Women’s recent job gains have been concentrated in low-wage sectors, though not exclusively.

As a side note, we learn today that American workers tend to stick to the same job longer today than they did 10, or 20, or 30 years ago. Workers had an average job tenure of 4.6 years in 2012, the last year for which figures are available, that’s up from 3.7 years in 2002 and 3.5 in 1983. And that holds for all age and gender categories.

American workers are stuck in a rut, and they’re staying in their jobs longer rather than seeking new opportunities. A high “churn” rate is typically seen as a reflection of a healthy economy. People are holding on to their jobs not because they want to, but because they don’t have as much opportunity as they once did. There were about 4.2 million so-called separations in October 2013, the latest month for which data are available; this is still down from 5.1 million in 2006, but a significant improvement on 3.9 million separations in 2011.

The leisure, manufacturing and services sectors added jobs in December, but construction cut 16,000 jobs, the biggest drop in the industry in 20 months. Some of the cuts in construction might be weather related. Retailers hired 176,000 workers in December; much of that is seasonal hiring but it was the highest level of seasonal hiring since 1999. The net gain for retailers was 55,000 jobs.

Health care cut 6,000 jobs, for the first cut in 10 years; I'm not sure what that says about the implementation of Obamacare. Transportation and warehousing lost a small number of jobs; this might suggest that shippers hired fewer workers for the holidays; UPS should have hired more. Factories added 9,000 jobs for a fifth straight monthly gain, however that was down from 31,000 in November.

Involuntary part-time workers, or people working part time because they can't find full time work, held steady at 7.8 million. These workers are counted in an alternate measure known as U-6, which measures unemployed as well as under-utilized workers. The U-6 was unchanged at 13.1% for December.

Long term unemployment remains a problem, with more than 3.8 million workers unemployed for 26 weeks or more and still wanting a job; that number was down from just over 4 million in November. Last month, 37.7% of the unemployed had been so for at least six months (2.5 percent of the labor force), an average that fell only slightly over the year, down about one percentage point. These long-term unemployment measures remain highly elevated, both in historical terms and most importantly relative to times in the past when Congress allowed extended benefits to expire.

State and local governments lost jobs for 4 straight years, but actually added about 54,000 jobs for 2013; however for the month of December, local government jobs dropped by 11,000. Federal government jobs continued to drop, of course.

The private sector has added jobs for 46 consecutive months, increasing by 8.2 million over that period. For 2013 the economy added 2,186,000 jobs; down slightly from 2012; up slightly from 2011; much better than 2008 and 2009, when we lost a combined 8.6 million jobs. The unemployment rate has dropped from 7.9% in December 2012 to 6.7% in December 2013, but again, much of that was due to people leaving the work force. The share of Americans with jobs did not increase in 2013. The economy added about 182,000 jobs a month, just enough to keep pace with population growth.

At the end of 2006, 63.4% of American adults had jobs; for 2013 the employment rate had dropped to 58.6%. The unemployment rate doesn't measure the share of American adults who don't have jobs, it only counts people who are seeking work, and the unemployment rate has been dropping because fewer people are seeking jobs.

This weak report is just one month, and that is not enough to form a trend. There will be revisions in coming months. The BLS director said that cold weather may have distorted the figures a little, maybe not.

Today's jobs report may have some important policy implications. The decline in unemployment may limit the Federal Reserve’s ability, or at least its willingness, to stimulate the economy. St. Louis Fed Bank President James Bullard said today the central bank is likely to continue to reduce its bond purchases and not be swayed by the weak December job report. "I would be disinclined to react to one month's numbers," Bullard told reporters after a speech in Indianapolis. "For now we are on a program where we are likely to continue to taper at subsequent meetings," he said. Starting this month, the Fed reduced its monthly bond purchases to $75 billion from $85 billion. The Fed rate-policy committee meets again on Jan. 28-29.

This morning's report suggests the economy is recovering in starts and fits; what it should tell the Fed is that their QE never really trickled down to the average American family. The Fed may claim that the wealth effect from artificially stimulated housing markets and QE juiced stock markets has been a rising tide that lifts all boats, but the reality is that it only lifted yachts. And the problem, or one of the problems, is that the rich spend a far smaller proportion of their earnings than the middle class and poor; who tend to live paycheck to paycheck or even hand to mouth. This is why the Fed's reliance on the wealth effect has resulted in a demand deficit, and ever-slowing velocity of money. The rich save, the poor spend, and when money is spent, it circulates through the economy, creating demand, and to meet demand businesses hire people, or people take entrepreneurial incentive; and this is how jobs are created – by demand.

It’s the job market, not the stock market, that most people depend on for their economic well-being, and as long as the former remains below full employment and with a declining share of participants, the benefits of growth will not reach far beyond the top echelons and the economy will not get out of second gear.