Only 80K New Jobs, But Unemployment Rate Drops To 9.0%

by: Doug Short

Despite a slightly lower-than-expected 80K new jobs the unemployment rate declined from 9.1% to 9.0%. The consensus was for 85K new jobs. Today's report included an upward revision of last month's non-farm payrolls from 103K to 158K.

Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Non-farm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9%, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, healthcare and mining. Government employment continued to trend down.

The unemployment peak for the current cycle was 10.2% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the current and previous bear markets.

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The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The October number is 3.8% - down from last month's 4.1%. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric remains significantly higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

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The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

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The inverse correlation between the two series is obvious. We can also see the accelerating growth of two-income households in the early 1980s. The July 2011 ratio was a modern low of 58.1% - a level not seen since the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio is consistent with levels of the early 1980s.

The employment-population ratio will be interesting to watch going forward. The first wave of Boomers will be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the Boomer transition to retirement will accelerate over the next several years.

What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift - the result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment has continued to rise, although the October 39.4 is off last month's all-time high of 40.5. It had approached a level nearly double the peak in 1983 following the 1981-82 recession.

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The last chart is one of my favorites from Bill McBride at Calculated Risk. It shows the job losses from the peak employment month since World War II. Note the addition of the dotted-line alternative for the current cycle, which shows unemployment excluding the temporary census hiring.

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The start date of 1948 was determined by the earliest monthly unemployment figures collected by the Bureau of Labor Statistics. The best source for the historic data is the Federal Reserve Bank of St. Louis.