More thoughts on the employment report | FT Alphaville

More thoughts on the employment report

Let’s jump right in:

1. To dispense with the obvious, the headline number of 103,000 new jobs fell a good deal short of the roughly 150,000 expected. Including subsequent revisions, this is what the payroll changes in the last six months look like:

July: -66,000
August: -1,000
September: -24,000
October: 210,000
November: 71,000
December: 103,000

(The months through September include people who lost temporary jobs doing the census.)

2. But the revisions to prior months have been notable, with the November figure revised up by 32,000, and October’s by a whopping 59,000 above the original report (when combining the revisions from the next two). We noted last month that seasonal adjustments were having an abnormal skewing effect on the November numbers, and we suspect that these might still be playing a role. So we wouldn’t be surprised by further hefty upward revisions to both November and December next month.

3. Clearly the payroll number fell short of what the earlier ADP report might have predicted, but it’s not clear which is more off the mark. Over time the two reports do tend to converge, but it’s hard to know whether ADP or the BLS is more accurate in any single month. Possibly they’re both off, and the truth is somewhere in the middle. At the moment, other indicators still suggest a labour market improving more quickly the headline payroll number implies. (So, for that matter, does the household survey part of the BLS report, more on which in a second.)

4. The unemployment rate declined by more than expected, to 9.4 per cent — and this also coincided with a healthy decline in U-6, the rate that includes people who have stopped looking for work and employees who have settled for part-time work because they either lost or can’t find full-time work:

5. Part of the reason for the change was another decline in the labour force, this time by 260,000. This leaves the labour force participation rate at a staggeringly low 64.3 per cent. But even that isn’t the whole story…

6. To complicate things a bit further, there’s a divergence what’s being communicated by the establishment survey vs the household survey (which isn’t unusual).

Again, the establishment survey reports the headline number of 103,000 additional payrolls. But the household survey, in addition to reporting the drop in the labour force, also shows that total employment climbed by 297,000 — which adds up to a total decline in the unemployed of 556,000 (give or take a thousand for rounding).

The employment-population ratio therefore ticked back up a bit to 58.3 per cent. To summarise all this, there was both a substantial decline in the labour force but also a big increase in employment:

7. Things are still terrible for the long-term unemployed, whose ranks increased again, from 6.33 million in November to 6.44 million in December.

8. The establishment survey reported a decline of 10,000 jobs in the government sectors. As you can see in the chart below from the NYT, public sector job losses accelerated towards the end of last year, and we expect this to continue in 2011 as well:

9. Market reaction has been fairly muted. Here’s the S&P 500 at pixel time:

And the 10-year Treasury:

All things considered, another mixed bag of a report. We did expect a better headline number, but there’s a good chance it will be revised upward in the next couple of reports. The labour market continues to improve steadily, but the extent and pace of the improvement remain a bit uncertain.

Related links:
Payrolls breakdown … blech – FT Alphaville
Payrolls: upside surprise, but… – FT Alphaville