The Bureau of Labor Statistics (BLS) November 2010 employment report was a downside surprise to many who anticipate some ratio to the ADP jobs report. Forecasts were in the range of 150,000 to 200,000. The BLS headline:
The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November.
For months, the BLS has been estimating more jobs then were estimated by payroll service agency ADP. This month BLS reversed positions with ADP estimating non-farm private payroll growth at 93,000 (analysis here) – while the BLS estimate of non-farm private payroll was 50,000. (Note: the 39,000 headline number includes both private and public sector – the public sector non-farm employment declined 11,000.)
For a year, BLS has consistently estimated higher jobs growth until now. Those who read my work know I am not a fan of BLS methodology. This month, the BLS has provided a better seasonally adjusted answer to jobs growth. ADP’s seasonal adjustment factors for November are wrong. In the ADP analysis, it was found that the seasonally adjusted ADP data historically spiked in November, then corrected in December. It was warned that the ADP increase in November was small in comparison to the historical spike.
The BLS has more consistent employment movements in October, November and December. This portion of their methodology appears better.
It is the unemployment rate this month which grabs attention. From the BLS report:
This week the four week moving average of unemployment claims continued to moderate suggesting an improving employment picture overall. The weekly changes in the unemployment claims are too noisy for evaluation, and only the four week average should be taken seriously.
The bottom line is that employment is improving, but at a unacceptable rate. Many pundits believe that employment / unemployment will cure naturally as the economy improves. They are mistaken, at least if they have a 1-2 year time horizon.
Yes the poor economy effected the rate of employment. But the underlying problems are much deeper. This week, Econintersect looked at the double edged sword of productivity and offered the following:
The negative aspect of real productivity improvement is that increased productivity reduces labor content and labor earnings. Reduced labor earnings reduces the potential for domestic consumption. Reduced consumption leads to reduced demand and production declines unless the reduced domestic demand is offset by increased exports. As production declines, an economy of scale tipping point can be violated thus losing the productivity gain. The downward spiral of demand has greater potential to be realized when the productivity gain results from outsourced production across national borders. In that case, not only is labor cost reduced, but domestic demand is lowered further by whatever labor cost is transferred overseas. This increased productivity / reduced demand phenomenon is part of the economic headwinds of the new normal. The solutions are not apparent when you remain focused on money flows.
It is unlikely that an economy improving along the current trajectory will create acceptable employment growth for many years to come.
Reaction to the BLS Employment Report came from the National Federation of Independent Business (NFIB):
“In November, small business owners reported net new job creation. It wasn’t much, an average per firm increase of .01 workers, up from 0.0 in October. Seasonally adjusted, 14 percent of owners reported increasing employment at their firms by an average of 3.4 workers, the highest reading since December 2007 (the peak of the last expansion according to the National Bureau of Economic Research). On the down side, 16 percent reported reducing employment, an average of 3.2 workers. Bottom line, job creation was positive in November.
“Hard to fill job openings did fall a point to 9 percent of all firms, a headwind to lowering the unemployment rate. But plans to create jobs gained three points, rising to a net 4 percent of all owners, the best reading in almost two years (this after a four point improvement in job creation plans in October, a solid trend that promises a pickup in the pace of job creation).
“As Washington gets out of the way and reduces the barriers it throws up in the way of growth, the job picture will continue to improve. Consumer and owner optimism is rising slowing (sic), so owners will be more willing to bet their money on the future, making more capital expenditures and hiring more workers.”
Economic News This Week
Econintersect economic forecast for December 2010 estimated level or slightly negative economic growth. This week the Weekly Leading Index (WLI) from ECRI improved from a revised -3.3% to -2.4% implying the business conditions six months from now will be roughly the same as today.
No data released this week was inconsistent with Econintersect’s November forecast of slow growth. The table below itemizes the major events this week (click here for interactive table).
Bankruptcy Filings this Week: Palm Harbor Homes
Bank Failures this Week: None