The Adjusted Unemployment Rate is a Sobering 17.4%, but We Still Found Some Reason for Hope in the Government’s Monthly Report
The Labor Department’s monthly Employment Situation Report sobered up the investment community Friday, as unemployment proved stubborn in December, and job losses surprised economists who were looking for improvement. Still, we found a few crumbs to sustain us.
The first quarter’s trading sentiment hinged on this critical data, but investors came out of its release as uncertain as they seemed before it. Stocks continued to meander through Friday as a result, and paper profits earned in 2009 remain under threat should any serious negative catalyst surface before economic break out does.
The Bad News
Let’s review the bad news first, so we might close out this discussion in a hopeful manner. Not to marginalize the bad news though, as it was quite sobering to a market that prefers “V-shaped” recoveries to indecisive “W-shaped” ones.
The most concerning bit of data was clearly found in the Nonfarm Payrolls line, where December drove the loss of 85,000 jobs. Looking back to last January, when this data-point was posting 700K+ Payroll losses, might lead one to rejoice now. The problem was that November’s report on the more current labor environment had shown only 11K jobs lost, and that figure was even revised to an improvement of 4,000 this month. So the bar was set quite higher.
The last thing investors want to see now is uncertainty as to the direction of the economy, and a new dip in employment would bring that specter into view. Economists had not foreseen the dip either, with the consensus forecast calling for a gain of 10K jobs in December. You can see how this could prove sobering to an investment community sitting on a freshly closed out 2009 paper gain of 18.8% in the Dow Jones Industrials and 23.5% in the S&P 500 Index. Stock values are thus precariously tethered to the economic outlook.
Unemployment Rate data only intensified the migraine for President Obama, who has seen the ranks of the unemployed climb by 7.6 million Americans through the recession he inherited; about half these job losses have occurred while he’s been in office. December’s unemployment rate proved stubborn while sitting at 10%, matching the drastic mark recorded in November, though down from 10.2% seen in October. Economists had anticipated a rate of 10%, based on Barron’s compilation (10.1% at Bloomberg). Labor Secretary Hilda Solis politically pointed toward the trend of “consistent moderation” of job losses, while noting “That’s not to say that this is acceptable. It’s not.”
The report conceals further dire data that the trained eye might find, but "The Greek" is sure to uncover for you. The long-term unemployed are falling out of the government’s count of the overall labor force, based simply on the length of their joblessness, and sometimes due also to their despair.
About 2.5 million Americans are now classified in this “marginally attached to the labor force” category, up 578K from a year ago. What places them in this group is long-term joblessness combined with four weeks of idleness, or not looking for a job, and what keeps them there is partly despair and partly the fact that jobs do not exist in this economy just yet. Unfortunately, some 929K (up from 642K in 2008) of them have all but given up on getting a job. One positive note for poor folks like these though is that the national census will employ about 1.15 million such Americans on a temporary basis through the first half of 2010.
While the exclusion of these disconnected individuals reduces the labor count, it does so with a skew towards understating unemployment since these folks were once tallied as jobless. It’s like assuming they have started businesses of their own, are living comfortably off excessive savings, or have died. We assure you that Americans are not successfully starting many small businesses in an economic environment such as our current state of affairs, and that not many of our citizens are comfortable while burning through savings and deciding between downsizing lifestyle or going bankrupt. Unfortunately though, many people do pass on due to the stresses of life. Still, these people live! Therefore, mathematical exercises that return these folks back into the calculation are called for, because once the jobs come back, so will most of these so-called uninterested Americans.
In December 4 in 10 unemployed workers had been jobless for 27 weeks or longer. Some 6.1 million Americans have therefore been out of work for over two years. Furthermore, part-time job capacity appears filled to me, or else the involuntary part-time worker count would still be trending higher. Instead, it has stuck at 9.2 million (or in the area) since last March. These individuals would rather be working full-time, but were either forced by economics to take part-time jobs or simply had their full-time hours reduced. Trust me, they are not getting by well either, nor are they contributing much to discretionary consumption. So it makes sense to include these individuals as underemployed.
If we add back the 2.5 million displaced workers to the labor market, and include the 9.2 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((15.3M + 2.5M + 9.2M) / (153.1M + 2.5M)) * 100 = 17.4%. That’s quite simply a lot of struggling Americans, only some of which are currently receiving unemployment benefits. You see... you do not qualify for benefits if you had the poor luck of losing your job just before the government’s deadline for the extension of benefits.
Job losses continued to mount in construction, as harsh weather seems to have contributed to an already slow development environment. Construction employment fell by 53K in December, far worse than the 27K jobs lost in November. Manufacturing shed another 27K jobs in December, representing improvement from the 35K jobs lost in November. The Service Sector shed 4,000 jobs, after adding 62K in November. The Retail Trade only lost 10K jobs in the seasonally busy operating period.
The government is supposed to pick up the slack in times like these, and its many declared stimulus programs are slated to do that over years to come. However, state and municipal level workforce is seeing significant cuts, as these local governments must match expenses with income within their budgets. The federal government simply offers up debt and prints dollars to make big wishes come true at the cost of our children and children’s children. The public sector still shed 21,000 jobs in December.
The Good News
It’s about time for good news is it not? Before you go joining the ranks of disenchanted laborers, consider these signs of hope. A few crumbs were offered us, and it was sustaining enough to keep the market from tanking Friday. First of all, the overall payroll deterioration was not large enough to fog the fact that other forward indicators are showing clear signs of economic recovery. Friday’s data simply illustrates a slow to move employer mindset, from the same mind (mind you) that kept job shedding from occurring in the first place well into the firestorm.
The crumbs offered us in Friday’s data included a significant leading indicator of future employment gains. Temporary Employment, the segment many employers look to before committing to full-time hires, added 47K jobs in December. Since July, this forward-looking segment is up 166K jobs. Also, Professional and Business Services added another 50K jobs through the month. The service sector drives the American economy, and so this cannot be ignored. Finally, while the average workweek (hours worked) was unchanged in December, it has been on the uptrend. This leads to capacity utilization and finally new hiring.
None of these important facts should be allowed to fall too far back in the minds of readers. We look toward economic signs now that the investment community might grab a hold of to take stocks another leg higher in 2010. For this reason, stocks held on, and the Dow closed up fractionally on Friday. But buyer beware, because thanks to a slowly improving environment, recently fluffed up stocks remain loosely tethered to the hope of economic improvement, and are thus vulnerable to negative catalyst in the meantime.
Disclosure: No Positions