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06/02/2010 | U.S. Payroll Jobs Still Edging Lower, But the Unemployment Rate Drops

Nigel Gault

The January employment report showed 20,000 jobs lost, but the unemployment rate dipped from 10.0% to 9.7%. Overall, it portrayed a jobs market that is gradually turning the corner.

 

January payrolls fell 20,000, but the unemployment rate dropped from 10.0% to 9.7%. Manufacturing payrolls increased for the first time since January 2007, temporary employment rose sharply for the fourth month in a row, and hours worked rose. The overall job loss was a disappointment, but the other signals are encouraging, and the bottom for employment is close at hand. But the improvement is likely to be gradual, suggesting that the welcome drop in the unemployment rate cannot yet be taken as the start of a trend.

Employment is still declining, and the overall loss in jobs during the recession is far worse than first announced. But the trend is much improved. Over the past three months, payrolls have fallen an average 35,000, while in the three months to October they fell an average 220,000. The workweek is rising and temporary jobs are up sharply, usually a precursor to overall employment gains.

Manufacturing is where the improvement is most obvious, benefiting from the turn in the inventory cycle and from a pickup in exports and capital equipment spending. And some of the temporary hiring (classified in services) probably reflects help for manufacturers. But private services are where the bulk of job creation traditionally occurs, and (apart from temps) private service jobs have not yet turned the corner. And there remain some key pockets—nonresidential construction and state and local government—where job declines remain severe.

Today's report incorporates revisions to historical payroll employment figures that benchmark the jobs count to an estimate of total employment derived from unemployment insurance records for March 2009. It shows a much deeper decline in jobs than previously announced. The key headlines are that December 2009 payrolls are now 1.36 million lower than first estimated, and that the total payroll loss since the recession began is now 8.4 million, instead of 7.2 million.

The revision took 930,000 off the level of employment in March 2009. The bulk of the revisions were concentrated in the four months from August 2008 to November 2008, when the monthly average payroll decline was made more severe by an average 150,000 per month. But there were also revisions to the data beyond March 2009. The average payroll decline from March 2009 to December 2009 worsened by 48,000 per month in this revision.

The overall message is that the Bureau of Labor Statistics' "births and deaths" model, which attempts to adjust the payroll survey results for the births and deaths of new firms, originally gave too optimistic a picture in the face of the deepest recession since the Great Depression.

In the payroll details for January, manufacturing jobs rose by 11,000, their first increase since January 2007. The rise was not widespread, since it was dominated by a 23,000-job increase in motor vehicles and parts, as producers responded to the gradually improving vehicles market—but it is welcome nonetheless. Many other manufacturing segments still saw declines, but a few showed small increases. The manufacturing workweek (all employees) rose from 39.6 to 39.9 hours, while overall manufacturing hours worked rose 0.9%, more than reversing a small dip in December. In addition, some of the increase in temporary-help employment (which is classified in the services sector) probably reflects workers being deployed in manufacturing. In combination with the robust ISM survey evidence earlier in the week, these figures are pointing to a sharp increase in manufacturing production during January.

Construction payrolls fell by 75,000, much worse than the 32,000 drop in December. The losses were heavily concentrated in the nonresidential sector, down 60,000. The residential sector lost 15,000, while heavy and civil engineering jobs were flat. Although the weather was very cold in much of the country early in the month, it does not appear to have played a role in the loss of construction jobs. The household survey found 259,000 workers unable to work due to inclement weather, far lower than the 417,000 average for the month of January.

In the private services sector, 56,000 jobs were added, although only 4,000 of these were full time, since 52,000 jobs were added in temporary help. There was a sharp 42,000 increase in retail jobs, a welcome signal of improved confidence in the consumer's staying power. Healthcare added 15,000 jobs, less than its 18,000 average gain over the last 12 months.

Firms have now added an average 62,000 temporary workers per month over the last four months. A spurt in temporary hiring is usually the precursor to permanent hiring. The last time we saw anything close to such a surge was in the three months to July 2003, when temp hiring rose an average 41,000 per month. Total payrolls turned positive on a sustained basis two months later, in September 2003.

The government lost 8,000 jobs in December, as state and local cuts offset federal hiring. State and local governments trimmed 41,000 jobs in January (16,000 in education and 26,000 elsewhere), as budget cuts took their toll. The federal government added 33,000 jobs, of which 9,000 were Census jobs. The U.S. Postal Service added 14,000 jobs, following 11 straight months of decline.

The unemployment rate fell from 10.0% to 9.7%, hitting its lowest level since August 2009. The household survey is better at measuring the jobless rate than it is at estimating either employment or the labor force, and trying to explain the unemployment dip in terms of household employment and labor-force changes is a hopeless task. The numbers are simply too volatile from month to month. The household survey showed a strange 541,000 increase in employment, but that roughly offset an equally odd 589,000 decline in household employment during December. Complicating matters even further, the January figure was actually distorted downwards by a change in "population controls." The estimate of the population as of January 2010 was revised down—lowering the household estimate of both employment and the labor force—but historical data were not revised. Removing that distortion, the household employment increase in January 2010 would have been even bigger, at 784,000 (with the labor force rising 360,000). These huge increases are not credible and simply underline, that to track employment changes, it is much better to focus on the payroll employment count than the household count (the household count comes from a much smaller survey).

The most comprehensive measure of underemployment (U-6)—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—fell from 17.2% to 16.5%. The number of long-term unemployed continued to rise, increasing the mean duration of unemployment from 29.1 weeks to 30.2 weeks. The long-term unemployed will be the last to benefit from the turn in the labor market.

Today's release introduced new estimates of hours and earnings for all private employees. Previously, these estimates had been confined to production and nonsupervisory workers only. The overall workweek rose from 33.8 to 33.9 hours, hourly earnings rose 0.2%, and aggregate hours worked rose 0.2%. The corresponding increases for production and nonsupervisory employees were from 33.2 to 33.3 hours for the workweek, 0.3% for earnings, and 0.3% for aggregate hours. Aggregate weekly payrolls rose 0.5%, a good sign for wage and salary gains during January, which in turn supports consumer spending power.

Despite many conflicting signals, the jobs report suggests that the labor market is bottoming out, and we expect to see payroll gains over the rest of the year. Overall, around 800,000 jobs will likely be added during the course of 2010, a modest but not jobless recovery. Notwithstanding today's good news, we think that the unemployment rate should stay stuck near 10%, as previously discouraged workers return to swell the labor force.


Global Insight (Reino Unido)

 


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