Ho Hum. Another mediocre month in employment land. A summary of the October 2011 BLS employment situation:
- BLS reported: 80K (non-farm) and 104K (non-farm private)
- ADP reported: 110K (non-farm private)
- Market expected: 88K to 100K (non-farm)
- Econintersect‘s Forecast: 145K (non-farm private)
Overall, I could find no recessionary elements in the data – of course it nowhere meets 140,000 to 160,000 jobs growth necessary to provide jobs for new entrants to the workforce (see caveats at the bottom of this post).
Non-seasonally adjusted non-farm payrolls declined 117,000 (see caveats below on seasonally adjusted data as the jobs growth in the first half of the year is spread to the jobs contraction in the second half of the year).
Econintersect has repeatedly pointed out questions about how the seasonal adjustment algorithms and data gathering methodology used by the BLS introduce uncertainty into interpretation of month to month changes in employment.
Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology.
Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers. Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points. We are now 16 months past the post recession turning point in employment.
This month, however, the ADP and the BLS numbers correlate.
Looking below the headlines using seasonally adjusted data:
- In the latest BLS report employment-population ratio ROSE from 58.3% t0 58.4% – and the labor force participation rate was unchanged from a downwardly revised 64.2%). These ratios tell you that the population or workforce without a job improved by 300,000. [Note: these are seasonally adjusted numbers].
- Econintersect does not like the BLS methodology of determining unemployment – only participation rates or employment-populations ratios tell you what is really going on with unemployment. But for those who like to read this the headline U-3 unemployment rate contracted slightly from 9.1% to 9.0%.
- The U-6 “all in” unemployment rate (including those working part time who want a full time job) rose declined from 16.5% to 16.2%.
- Average hours worked (table B-2) remained unchanged at 34.3. A rising number indicates an expanding economy.
- Government employment contracted 24,000 with the Federal Government contracting 2,000 – while state governments contracting 20,000 and local governments contracting 2,000.
- The big contributors to employment growth this month were education and health services (28,000) and administration and support services (26,000). In general, the growth was moderate across all sectors (except financial which grew marginally) – but the drag was the government sectors and construction.
- Economic markers used by Econintersect to benchmark economic growth were moderately up. The transport sector employment was up 0.2% month-over-month. The support services industry (including temporary help) was up 0.5% month-over-month. Econintersect believes the transport sector is a forward indicator. Others look at temporary help as a forward indicator, and this is positive also.
- Manufacturing rose 5,000 but construction contracted 20,000.
- The unemployment rate for people between 20 and 24 (Table A-10) fell slightly from 14.8% to 14.7%.
- Average hourly earnings (Table B-3) up-ticked slightly from $23.14 to $23.19.
Please refer to ADP Jobs Growth In October 2011 Not Terrible or Good for the statement from outplacement agency Challenger talking about the volatility of the layoffs.
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement a day before the jobs report was issued:
“The cold has set in, and it looks like it might be a long winter for small-business owners. Still hunkering down, small-business owners reported a small, but overall reduction in employment, posting an average reduction of 0.1 employees per firm in October.
“While consumer spending posted a slight uptick, those gains did not translate to improved small-business sentiment, and more importantly, did not create jobs. Seasonally adjusted, 12 percent of the owners added an average of 3.1 workers per firm over the past few months, but 11 percent reduced employment an average of 3.9 workers per firm. The good news is that October’s jobs numbers are better than September’s (which showed a net decrease of 0.3 employees per firm), but still not good enough to lower the unemployment rate. Some firms do have job openings, but 31 percent of those who hired or tried to hire reported few or no qualified applicants for the positions.
“Fourteen (14) percent of small employers (seasonally adjusted) reported hard to fill job openings—the same as last month. Over the next three months, nine percent plan to increase employment (down 2 points), and 12 percent plan to reduce their workforce (unchanged), yielding a seasonally adjusted net three percent of owners planning to create new jobs. This is down 1 point from September and 2 points below August, the month that has, thus far, posted the strongest reading for 2011. For some context, in an expansion, this number should exhibit double digit readings.
“A snapshot at regional numbers reveals that job creation plans were quite negative among firms in all regions except the West Central and Mountain states. Energy development is driving a lot of business activity in these states.
“Overall, prospects for job creation remain bleak. I’ll say it again — it could be a long winter.”
In our October 2011 economic forecast published in late September, we estimated non-farm payroll growth at 145,000 – how many jobs businesses create in any one month is not directly dependent on these economic factors, but on individual decisions. The impact of all the economic factors is averaged out over many months.
Since a new recession or double dip is on people’s mind, there is nothing in this data to suggest the economy was trending towards recession. Unfortunately, the trend in employment is a real crappy but expanding economy.
Caveat on the use of BLS Jobs Data
The monthly headline data ends up being significantly revised for months after the initial release – and is subject also to annual revisions. The question remains how seriously can you take the data when first released.
The above graphic is the month-over-month change in employment based on the original headline non-farm employment level and the current stated employment levels at month end. You will note some pretty drastic backward revision for a major economic release the market reacts to in real time.
The BLS uses seasonal adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. Employment growth is spread over the entire year – employment does not really grow in the second half of the year. Therefore there are large differences between the unadjusted and the seasonally adjusted data.
There is the proverbial question on what is minimal jobs growth each month required to allow for new entrants to the market. Depending on mindset, this answer varies. According to Investopdia, the number is between 100,000 and 150,000. The Wall Street Journal is citing 125K. Mark Zandi said 150K. Econintersect uses employment / population ratios to determine the number which is between 140,000 and 160,000 – based on historical employment / population ratios.