Labor Market Still Grim, But the Worst Is Over

The employment market is pretty grim. We’re talking a double digit unemployment rate – and that’s just the base rate. The comprehensive unemployment rate is now 17.5% in the US. This is a fact not lost on our politicians. Friday, Barack Obama signed a bill that extends unemployment benefits and home buyer tax credits. But,, let’s parse the data to get a real read of what’s happening.

The household survey

The unemployment rate is based on a household survey. Basically, the Bureau of Labor Statistics (BLS) asks a bunch of people, “do you have a job? No? Are you looking? By asking enough different people these questions, the BLS can produce a statistic to represent the nationwide unemployment rate. That number is currently 10.2% – or 15.7 million of a labor force of 154.0 million in a population of 236.6 working age folks.

The two things to note are the rate 10.2% and the participation rate, now 65.1%, the lowest in 23 years. What this is telling us is that the actual toll of joblessness is much higher than 10.2% because a lot of people have given up looking for jobs.

The numbers above are all seasonally-adjusted. So, the true picture could be somewhat better because without adjustments the number of unemployed is actually 14.5 million, 9.5% of the active labor force and down from 15.2 million in August. Either way, it’s still a grim picture.

I actually like to watch year-on-year data as an indicator of directionality. On this front, the report is looking much better. The increase in the number of unemployed is down from a peak of 6.0 million (6.2 million unadjusted) to 5.5 million (5.1 million unadjusted). So the year-on-year rate increase is now 3.6%, down from 3.9% in June. Again, these numbers are grim (the peak y-o-y change was 1.8% in 2001, for example). But the direction of change is now down.

The establishment survey

This is where the BLS gets non-farm payrolls (NFPs), the number of job losses per month. Non-Farm Payrolls (130.8 million) are now at their lowest level since March 2004 (also 130.8 million). And if one goes back to the period before the previous recession, NFPs were 132.5 million in February 2001. That means we have lost 1.7 million jobs over a nine-year time frame. This is an ugly data point.

The silver lining here is that both unadjusted data and y-o-y changes are better. NFPs are now 132.0 million unadjusted and that is up 1 million from 2 months ago. year-on-year changes are now falling. Translation: the labor market is still grim, but the worst is over.

My read of the data is this: There were no big surprises. I expected losses of 200,000 based on the ADP number and the jobless claims numbers. Yes, there was a jump in the unemployment rate, but jump was misleading because of a falloff in the labor participation rate. On the whole, the employment market is weak, but it is not deteriorating. Can we sustain a recovery even so? Probably.

Comments

[Dialectical...:]

I can't figure out if you are the most bearish sounding bull I have read or the bullest bear. You have a tendency to paint a really ugly picture of the economy and then say that the recovery is moving forward. And the odd thing is that I mostly agree with you. I think that both the rampant recovery folks and the apocalyptic crash camp are probably both wrong in the long run.

Having said that, I'm not sure I agree the "recovery" will be "sustained" in the short run. We are a long ways away from gaining traction due to the number of unemployed and its impact on consumer spending. So while I think we'll pull out of this, I think we are in for a very long period of sluggishness.

Nov 08 05:25 PM

[Edward Harr...:]

I think you're on to me, Dialectical. I am the most bullish bear. I try to call it as I see it. Just because I have a particular view doesn't mean I should twist the data to fit that view.

My bearishness stems from my fundamental belief that economic policy is creating unsustainable debt-fueled growth. But it is not clear when this unsustainability will be made manifest once and for all. In the meantime, I take bull markets and cyclical upturns at face value, cognizant of the underpinnings in regards to debt and leverage.


On Nov 08 05:25 PM Dialectical Materialist wrote:

> I can't figure out if you are the most bearish sounding bull I have
> read or the bullest bear. You have a tendency to paint a really
> ugly picture of the economy and then say that the recovery is moving
> forward. And the odd thing is that I mostly agree with you. I think
> that both the rampant recovery folks and the apocalyptic crash camp
> are probably both wrong in the long run.
>
> Having said that, I'm not sure I agree the "recovery" will be "sustained"
> in the short run. We are a long ways away from gaining traction
> due to the number of unemployed and its impact on consumer spending.
> So while I think we'll pull out of this, I think we are in for a
> very long period of sluggishness.

Nov 08 09:05 PM

[ryanclarke:]

I am bearish and have no problem with admitting as such in the face of this huge stock market rally for exactly one reason Ed Harrison mentioned : I AM VERY AWARE of the underpinnings in regards to debt and leverage. In the 92-93 recession the consumer was asked to take on more debt and use this debt to get through to the "other side" of the jobs recovery. Ditto for the 01-02 recession. This 07-?? recession will be DIFFERENT because the banks have SHUT DOWN lending to consumers. Even the Fed's Flow of Funds indicates consumers are not INCREASING debt levels. Unless jobs come back in a huge way in a month or two ... +400k jobs created for a solid year ... I doubt most consumers have enough savings to make it through to a jobs recovery two or three years from now. The banks have saved big business for this year ... and made some money issuing debt to big business ... and big business has "rebuilt inventory" ... but in about six months I think we will find out the consumer is going to leave the stuff big business built on the shelf ... and stay home because gasoline prices are sky high.


On Nov 08 09:05 PM Edward Harrison wrote:

> I think you're on to me, Dialectical. I am the most bullish bear.
> I try to call it as I see it. Just because I have a particular view
> doesn't mean I should twist the data to fit that view.
>
> My bearishness stems from my fundamental belief that economic policy
> is creating unsustainable debt-fueled growth. But it is not clear
> when this unsustainability will be made manifest once and for all.
> In the meantime, I take bull markets and cyclical upturns at face
> value, cognizant of the underpinnings in regards to debt and leverage.
>

Nov 08 09:20 PM