Monday, December 7, 2009

A Final Thought on NFP

There was no shortage of commentary in the wake of Friday's jobs report. Among the more idiotic comments I saw from a prominent talking head with his own television show and the intials LK was this gem (emph. mine):
I think that because businesses have become much healthier, the layoffs are about over. There may even be a labor shortage.
Seriously, who in their right mind would look at Friday's report and suggest we may be facing a "labor shortage"? Whatever.

More interesting (and sane, and rational) was the commentary out of Merrill Lynch, whose economics team has done a very decent job of calling the tune for the past few months. Here's the part that caught my eye (emph. mine):

The U-6 measure of unemployment, which is the broadest measure around, ticked down to a still-depressing 17.2% in November from a record 17.5% in October. What was missed by the unemployment rate was the pick up in the duration of unemployment. The median duration of unemployment jumped to a record 20.1 weeks in November from 18.7 weeks in October. And, a record 38.3% of workers have been unemployed for at least six months. In other words, the unemployment the US economy is dealing with is structural in nature, which suggests that it is going to take a long time to absorb the over 15 million workers that are unemployed and that the natural rate of unemployment has likely moved higher this cycle. So, while this employment report forces us to bring forward our expectation for job growth to next month we are not ready to change our Fed call – we still see the Fed on hold for the duration of 2010.
First off, Merrill's spot-on analysis here (and I've been critical of them) points out the absurdity of any notion we might be looking at a labor shortage any time soon.

Beyond that, the prospect that job creation is going to be painfully slow and that we may be in for a "naturally" higher rate of unemployment is exactly what concerns me most, and is what I fear will retard our ability to get back to any semblance of trend growth. Our recent gains in productivity would seem to support this notion.

To be clear: I'm not trying to be a doom and gloomer here by excerpting a research piece that happens to cite the rise in duration of unemployment. I'm solely focused on what the consequences of that fact might be: A painfully slow, jobless recovery with an attendant, semi-permanent higher unemployment rate.

I'll have a post up tomorrow morning that will examine further what the employment trajectory might look like.