A summary of the November 2011 BLS employment situation:
- BLS reported: 120K (non-farm) and 140K (non-farm private). Unemployment = 8.6%
- ADP reported: 206K (non-farm private)
- Market expected: 110K to 141K (non-farm)
- Econintersect‘s Forecast: 125K (non-farm private)
120,000 is subject to revision in the coming months (see caveats). This 120,000 is disappointing following the ADP number earlier this week – and below the 140,000 to 160,000 jobs growth necessary to provide jobs for new entrants to the workforce.
This BLS report felt most like it was temporary Christmas sales employment jump rather than a real long term employment based on the sectors where most of the jobs were added.
Non-seasonally adjusted non-farm payrolls rose 339,000 (see caveats below).
Looking below the headlines using seasonally adjusted data:
- In the latest BLS report employment-population ratio ROSE from 58.4% t0 58.5% – and the labor force participation rate fell from 64.2% to 64.1%. The employment-population ratio tell you that the population with a job improved by 300,000 – and the labor force participation rate appears to say employment fell by 300,000. [Note: these are seasonally adjusted numbers]. These ratios show contrary and conflicting results.
- 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 from 9.0% to 8.6%. One reason is that the BLS shrunk the size of the workforce by 315K.
- The U-6 “all in” unemployment rate (including those working part time who want a full time job) rose declined from 16.2% to 15.6%.
- Average hours worked (table B-2) remained unchanged at 34.3. A rising number indicates an expanding economy.
- Government employment contracted 20,000 with the Federal Government contracting 4,000 – while state governments contracting 5,000 and local governments contracting 11,000.
- The big contributors to employment growth this month were retail trade (49.8K), education and health (27K), and business services/temporary help (33K) – the largest detractors were the government sectors (-20K) and construction (-12K).
- 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 1.0% 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 2,000 but construction contracted 12,000.
- The unemployment rate for people between 20 and 24 (Table A-10) rose slightly from 14.0% to 14.2%.
- Average hourly earnings (Table B-3) fell slightly from $23.20 to $23.18.
Please refer to ADP Employment Data Shows Job Growth of 206,000 in November 2011 for the statement from outplacement agency Challenger talking about the improvements in the layoff situation.
NFIB Response to Jobs Numbers Appended on 03December2011
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement on the November job numbers:
“The jobs report this month bears the first good news in a while. While the net change in employment per firm wasn’t much different from zero, it had a positive sign in front of it for the first time in nearly half a year. On average, owners reported increasing employment an average of 0.12 workers per firm. Seasonally adjusted, 13 percent of the owners added an average of three workers per firm over the past few months, and 11 percent reduced employment an average of 2.9 workers per firm. The remaining 74 percent of owners made no net change in employment.
“Forty-seven (47) percent of small business owners hired or tried to hire in the last three months and 35 percent of them reported few or no qualified applicants for positions, both figures up 4 points from October.
“The percent of owners cutting jobs has returned to ‘normal’ levels. Even in a great job market, over 300,000 file initial claims for unemployment, i.e. they are fired or laid off. And the percent of owners adding employees (creating jobs) continued to trend up. Reports of new job creation should pick up a bit in the coming months.
“Sixteen percent (seasonally adjusted) reported hard to fill job openings up 2 points and the highest reading in 38 months. Over the next three months, 11 percent plan to increase employment (up 2 points), and 11 percent plan to reduce their workforce (down 1 point), yielding a seasonally adjusted net 7 percent of owners planning to create new jobs, a 4 point improvement and the strongest reading in 38 months.
“Let’s hope this positive report is the start of the trend and not just a blip.”
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 (updated through October 2011) 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.
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.
The BLS uses seasonal adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. The following graph which shows unadjusted job growth – seasonal adjustments spread employment growth over the entire year. Employment does not really grow in the second half of the year. (note: it normally does grow between October and November due to Christmas hiring).
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.