Friday, December 07, 2012

Employment Report: More Positives than Negatives

by Bill McBride on 12/07/2012 11:28:00 AM

There were positives and negatives in the November employment report, and I'd like to start with two clear positives.

First, seasonal retail hiring was very strong in November (see 3rd graph below). There is a fairly strong correlation between seasonal hiring and holiday retail sales, and this record seasonal hiring suggests a solid holiday season.

Second, a key theme we've been discussing is that we are nearing the end of state and local government layoffs (see last graph). This has been ongoing for over 3 years, and it appears the drag from state and local governments is mostly over. Of course employment at the Federal level is still shrinking, and everyone expects more austerity in 2013.

Other positives include better than expected employment growth, the decline in the unemployment rate to 7.7% (the lowest level since December 2008), a decline in part time workers, and a decline in the long term unemployed (although this is still very high).

Negatives include the decline in the participation rate, the downward revision to payroll jobs in previous months, and no change in hours worked.

However, overall, I think there were more positives than negatives in this report. Here are a several more graphs...

Employment-Population Ratio, 25 to 54 years old

Employment Population Ratio, 25 to 54Click on graph for larger image.

Since the participation rate has declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.

This ratio should probably move close to 80% as the economy recovers. The ratio declined in November to 75.7% from 76.0% in October.  Not good news.

Percent Job Losses During Recessions

Percent Job Losses During Recessions
This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.

In the earlier post, the graph showed the job losses aligned at the start of the employment recession.

This financial crisis recession was much deeper than other post WWII recessions, and the recovery has been slower (the recovery from the 2001 recession was slow too). However, if we compare to other financial crisis recoveries, this recovery has actually been better than most.

Seasonal Retail Hiring

According to the BLS employment report, retailers hired seasonal workers at a record pace in November.

Seasonal Retail HiringTypically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping.

Retailers hired 465.5 thousand workers (NSA) net in November. The combined level for October and November is the highest ever. Note: this is NSA (Not Seasonally Adjusted).

This suggests retailers are fairly optimistic about the holiday season. There is a decent correlation between retail hiring and retail sales, see: Retail: Seasonal Hiring vs. Retail Sales

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 8.2 million in November, was little changed over the month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
The number of part time workers declined in November to 8.18 millon from 8.34 million in October.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 14.4% in November (from 14.6% in October).

Unemployed over 26 Weeks

Unemployed Over 26 Weeks This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 4.79 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 5.00 million in October, and is at the lowest level since June 2009. This is generally trending down, but is still very high. Long term unemployment remains one of the key labor problems in the US.

State and Local Government

State and Local GovernmentThis graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011. So far in 2012, state and local governments have actually added a few jobs, and state and local government employment increased by 4,000 in November.

Note: The dashed line shows an estimate including the benchmark revision.

It appears most of the state and local government layoffs are over, however the Federal government layoffs are ongoing. Overall government employment has seen an unprecedented decline over the last 3+ years (not seen since the Depression).

All Employment Graphs