A summary of the December 2011 BLS employment situation:
- BLS reported: 200K (non-farm) and 212K (non-farm private). Unemployment = 8.5%
- ADP reported: 325K (non-farm private)
- Market expected: 150K to 165K (non-farm), 8.7% unemployment
- Econintersect‘s Forecast: 100K (non-farm private)
200,000 is subject to revision in the coming months (see caveats below). Private non-farm payrolls have grown by 160,000 per month average in 2011 – and jobs growth required to support population growth is between 140,000 to 160,000. It is also interesting to note that ADP’s job growth averaged 162,750 per month in 2011.
This BLS report again 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 – food services and bars (24K), couriers and messengers (42.2K), retail trade (27.9K).
Non-seasonally adjusted non-farm payrolls rose 339,000 (see caveats below).
Note that the BLS “updated” its survey methodology this month, and backward revised the unemployment numbers for 2011.
Looking below the headlines using seasonally adjusted data:
- In the latest BLS report employment-population ratio is unchanged at 58.5% – and the labor force participation rate was unchanged from a downwardly revised 64.0%. The employment-population ratio tell you that the population with a job did not change (each 0.1% is 300,000 jobs). [Note: these are seasonally adjusted numbers]. In other words, any reduction in the unemployment rate is caused by defining an unemployed person as no longer in the workforce.
- 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 and upwardly revised 8.7% to 8.5%. One reason is that the BLS shrunk the size of the workforce by 50K.
- The U-6 “all in” unemployment rate (including those working part time who want a full time job) rose declined from 15.6% to 15.2%.
- Average hours worked (table B-2) remained improved from 34.3 to 34.4. A rising number indicates an expanding economy if the employment is also rising.
- Government employment contracted 12,000 with the Federal Government expanded 2,000 – while state governments unchanged and local governments contracting 14,000.
- The big contributors to employment growth this month were food services and bars (24K), couriers and messengers (42.2K), retail trade (27.9K) and health care (22.6K) – the largest detractors were the government sectors (-12K) and specialty stores [sporting goods, book stores, hobby] (-10.2K).
- Economic markers used to benchmark economic growth were mixed. The transport sector employment was up 1.2% month-over-month. The support services industry (including temporary help) was statistically unchanged 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 23,000 and construction rose 17,000.
- The unemployment rate for people between 20 and 24 (Table A-10) rose slightly from 14.2% to 14.4%.
- Average hourly earnings (Table B-3) rose slightly from $23.20 to $23.24.
Please refer to ADP: 325,000 Job Gains in December 2011, Challenger 2012 Jobs Forecast Weak for the statement from outplacement agency Challenger talking about their forecasts for 2012.
NFIB Jobs Statement
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement on December small business job growth:
“Unfortunately, December’s jobs numbers fizzled, with the net change in employment per firm turning negative again; small businesses lost an average .15 workers per firm. Seasonally adjusted, 13 percent of the owners added an average of 2.6 workers per firm over the past few months, and 12 percent reduced employment an average of 3.5 workers per firm. However, the majority of owners (75 percent) made no net change in employment. Forty-five percent of owners hired or tried to hire in the past 3 months, but 34 percent of them reported few or no qualified applicants for the position(s).
“The good news is that the number of owners cutting jobs has ‘normalized’. In the past several months, reports of those cutting workers have been at the lowest levels since the recession started in December 2007. Initial claims for unemployment are now running closer to 375,000—a great improvement in recent months. In a solid job market, over 300,000 file initial claims for unemployment, thus current readings are much closer to full employment levels than they have been for years. The percentage of owners adding workers continued to trend up. Given this trend, reports of new job creation should see a slight uptick in the coming months.
“Fifteen percent of owners (seasonally adjusted) reported hard to fill job openings. Although down 1 point from November, this is the second highest reading in 39 months. Over the next three months, 9 percent plan to increase employment (down 2 points), and 8 percent plan to reduce their workforce (down 3 points), yielding a seasonally adjusted net 6 percent of owners planning to create new jobs, a 1 point decline but still one of the strongest readings since September 2008.
“Only time will tell what 2012 will bring. At least it appears that plans to hire are trending in a positive direction.”
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 Contributor Jeff Miller’s description of BLS methodology:
- An initial report of a survey of establishments. Even if the survey sample was perfect (and we all know that it is not) and the response rate was 100% (which it is not) the sampling error alone for a 90% confidence interval is +/- 100K jobs.
- The report is revised to reflect additional responses over the next two months.
- There is an adjustment to account for job creation — much maligned and misunderstood by nearly everyone.
- The final data are benchmarked against the state employment data every year. This usually shows that the overall process was very good, but it led to major downward adjustments at the time of the recession. More recently, the BLS estimates have been too low.
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.
However, there is some discussion that neither the ADP or BLS numbers are correct – as both are derived by a sampling methodology. The answer could be that there is no correct answer in real time – and that it is best to look at the trends. As have been noted, all eventually end up correlating.
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. The graph below uses the historical employment-population ratios to show jobs growth per month if the population was 300 million.