Today’s jobs report has some good news, but we continue to look for better news, with the bottom line being that the unemployment rate fell again and by a lot but payrolls didn’t increase as much as we would have liked. I’m not trying to wear rose-colored glasses here, but most of the other recent economic indicators have been much more positive than the stubborn payroll numbers would suggest, and economists and commentators have been talking about what the numbers all mean and looking for analogs.
Overall, there are several idiosyncrasies/unknowns that make me place much less weight on today’s employment numbers than I typically do (those are discussed below). However, keep in mind that accurately measuring relatively small changes in employment and unemployment from month to month is a tough job. This is in part because the degree of precision we ask of the statistical agencies is too daunting (for instance, 200,000 new jobs sound like a big number, but relative to a base of about 130 MILLION, it is small, just 0.15 of 1 percent – seriously, that’s really small. Also keep in mind that we have about 9 million employer businesses in this great land of ours, and we only survey a few hundred thousand on a month-to-month basis).
Let’s talk about the unemployment rate first. In December, the unemployment rate fell from 9.8 to 9.4 percent and then fell to 9.0 percent in January. When was the last time the unemployment rate fell this much in a two-month span?
A. 2002
B. 1991
C. 1983
D. 1958
[insert Final Jeopardy music here……] The answer is D, 1958.
Now let’s talk about payroll employment. Even with a couple of upward revisions to November and December, today’s payroll employment results weren’t as strong as we would have liked. Why? One suspect is the weather. To get a rough handle on whether the weather significantly depressed the January payroll estimates, we can look to some answers from the household survey, as opposed to the payroll survey (the survey that counts jobs by asking businesses how many people they are paying). The household survey counts all people who say they have a job regardless whether they were able to work in the week of the 12th. For people who had a job but were not at work during the week, the survey digs for more information, including whether the weather prevented people from going to work (or being told to stay home). In January, 886,000 people had a job but did not work any during the weak because of the weather. This is up from 259,000 a year earlier and is close to the 1,031,000 workers that were stuck home during last February’s blizzards, known in DC as “snowmageddon.” Further, the household survey also asks full-time workers if their workweek dropped below 35 hours because of weather. Here the impacts are even more dramatic and help provide context to the 0.1-hour drop in payroll hours reported in the payroll survey (and especially the 0.8-hour drop in construction). In January, close to 4.9 million full-time workers worked essentially part-time hours because of the weather. This dwarfs the 342,000 whose hours were cut last January because of weather and again is just a hair below the 5.3 million impacted by “snowmageddon.”
So, just how much payrolls were depressed by the weather is hard to pin down, and I imagine estimates will vary. Keep in mind though that in the bigger picture, most of the incoming economic data has been very positive, with Macroeconomic Advisers calling for GDP growth of about 4 percent in Q1. Additionally, as I mentioned earlier, the estimates of private sector job growth for November and December were revised up -- +128,000 and +139,000 respectively. We’ve now seen positive private sector job growth for 11 consecutive months. What follows below is the more nitty-gritty of today’s release followed by some really good stuff (written by ESA staff) on temp help supply and average weekly hours as harbingers of future job growth.
-Mark Doms, Chief Economist, U.S. Department of Commerce
February 4, 2011
2011 Brings Faster Employment Growth
• Non-farm businesses edged up by 36,000 jobs in January, well below December’s increase of 121,000 and consensus expectations of 140,000. A wild seasonal swing in the transportation and warehousing industry and wicked winter weather account for much of this surprising weakness.
• The unemployment rate dropped by 0.4 points for the second month in a row and now stands at 9.0 percent. While the December decline was due equally to persons finding work and others dropping out of the labor force, the January drop was principally due to the latter fact. The labor force participation rate (the share of persons working or looking for work) has fallen to 62.4 percent, the lowest level since 1984.
o Private sector employment increased by 50,000 jobs, compared to 139,000 in December. Yet, the same share of private sector industries (59.4 percent) added workers over the month. In other words, unusual factors in a handful of industries account for the weakness. The main factor was a huge seasonal swing in employment upward in December and downward in January in the courier and messenger industry (within transportation and warehousing). The winter weather, which brought snow to all states but Florida during the reference period, resulted in job losses and fewer shorter workweeks in construction and likely in a number of industries across the economy.
o Once a year, the Bureau of Labor Statistics (BLS) corrects its sample-based estimates of payroll jobs for the month of March using job counts from unemployment insurance (UI) tax records that nearly all businesses file. So, these data tell us how far off the sample was and let BLS adjust their estimates. Today’s revisions reduced non-farm payroll employment in March 2010 by 378,000 or just 0.3 percent. These annual revisions tend to be cyclical. So, for example, last year’s benchmark revision, which corrected data for March 2009 (at the depth of the recession), was very much like the recession itself: It was historically large and negative, as the downward revision came in at 902,000 jobs. The fact that this year’s revision is smaller provides additional evidence that the economy in early 2010 was already heading back in the right direction.
o The weakness in the job market during the recession affected men more than women, causing some commentators to call the downturn a “mancession.” However, what was a historically large gap between the male and female unemployment rates has been narrowing during the recovery. Joblessness for men has declined from 11.4 percent in October 2009 to 9.5 percent in January, while the unemployment rate for women was 8.5 percent in January, little different from the October 2009 rate of 8.7 percent.
• The net job gains we have seen over the past year have stemmed largely from companies reducing their layoffs more than deciding to make many new hires. Data from the Job Openings and Labor Turnover Survey show 4.24 million hires per month in the first 11 months of 2010, an increase of 190,000 per month from 2009, while average monthly layoffs in 2010 numbered 1.88 million, a 420,000 decrease from 2009.
Leading Indicators of Job Growth
The labor market recovery is well underway. Non-farm payroll employment has increased by 1.0 million jobs since its low last February. Still, expectations and hopes are that job gains will further strengthen. Analysts closely scan the jobs report for other data that may point to faster employment growth in the months ahead. Among the most useful of these data are the number of people quitting jobs, the average weekly hours of manufacturing production workers, and changes in the level of temporary workers hired.
For example, because restless or unhappy workers are better able to move on when they perceive improvement in the labor market, the number of monthly quits are one gauge of employment recovery. And, indeed, quits have increased from 1.83 million per month in 2009 to 1.94 million in the first 11 months of 2010. Average weekly hours of manufacturing production workers is another important indicator of improvements in the labor market and one that, in fact, is included in the Conference Board’s composite index of leading economic indicators. Factory workers’ hours have been on the rise since March 2009, three months prior to the end of the recession and 11 months before non-farm employment posted its first increase. In fact, at 41.0 hours, the workweek for factory production workers practically has returned to pre-recession levels.
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Temporary help employment trends, while not an official leading economic indicator, also tends to foreshadow overall employment trends across the economy. That was especially true as we headed into the recession. Temporary help employment levels hit a peak of 2.6 million jobs in January 2007 and then began to decline -- 13 months ahead of non-farm employment. As the recovery has begun to gain steam, temp agencies have seen employment boom by nearly more than 25 percent, as compared to non-farm employment’s less than 1 percent rise.
