First, consider this chart:
The last six months have been extremely disappointing from an employment perspective. While we saw nice increases before that time, since then total establishment job growth has been fluctuating right around 0. Last month we printed over 150,000, and this month we saw a mere 39,000 -- a clear deceleration.
This is especially concerning considering the improvement we've seen over the last month. As I've been noting all week, and as reported in the latest Beige Book -- the last month we've seen a good improvement across the board in a variety of economic sectors.
The question is why the slowdown?
Here are some thoughts, in no particular order of importance.
1.) We've only recently seen a pick-up in economic activity and numbers. The previous Beige Book indicated the economy was weakening. In other words, there hasn't been enough improvement, especially in light of the slowdown we saw over the summer as a result of the EU situation.
2.) Companies are printing strong profit numbers without new hiring; from their perspective, there is no need for new employees.
3.) There isn't enough domestic growth (US based growth) to warrant the new hiring
4.) The legal uncertainty argument: the changes we've seen in the laws are extremely complicated and one (health care) has a direct bearing on hiring decisions. Until companies have sorted out the ramifications of these changes (and as soon as regulations are actually written) then we'll see an increase.
5.) There is still uncertainty about the future; that is, there is still enough concern about future growth prospects to put a freeze on big hiring plans.
6.) We're still seeing enough problems from Europe to raise enough concern about the future.
15 comments:
I think it's time to consider that we're seeing something akin to the "stagflation" in the 1970s. Before then, it was commonly assumed that there was an inverse relationship between inflation and unemployment. Higher inflation, and you got lower unemployed. Higher unemployment, and you got lower inflation. But when both were high at the same time, as we saw in the 1970s, that made people change their thinking.
Similarly, today, there's the assumption that economic growth leads to lower unemployment, and high unemployment leads to lack of economic growth. But when we're seeing both economic growth and unemployment at the same time, it's going to change people's thinking. In other words, the bad labor market isn't because of a "bad economy." It's because the labor market isn't working.
I don't buy the regulatory argument. If you needed employees to get the job done you aren't going to twiddle your thumbs about their benefits. This is especially true in small businesses where they are largely unaffected by the new regulations anyhow.
The reality is simple: there's not enough demand to justify hiring new people. Furthermore people are still generally shell shocked by the last few years. They are very risk averse and every little bit of bad news, be it Ireland, or Bank of America, it spooks people.
Once people get comfortable with the fact that the economy is going to continue to grow if at a slower than ideal rate, things will begin to pick up more.
Too bad the weatherization program turned into a massive bureaucratic snafu. The admin could look for methods of breaking that out, but they have shown a unfortunate tendency to pretend that the government and state governments work properly.
On CNBC it was reported that the private sector number was brought down by a loss of, iirc, 30,000 retail jobs. We lost *retail* jobs on *November*? Does that make any sense?
Could it be that Labor's seasonal adjustments are so dicey they're bringing down the whole report?
I'm with Steve; legal uncertainty is just a political propaganda excuse and a truly derpy, rage-inducing pathetic one at that. If you are overwhelmed with orders and risk being taken off a client's AVL, I've NEVER heard of what the heck's going on in D.C. as an excuse to cripple the company. The fallacy is that legislation is indiscriminate as mandated by the Constitution. If you're a Tier II OEM, you're subject to the exact same conditions as your rival Tier II, because the Constitution specifically prohibits bills of attainder. If you're scared to hire new help at the risk of losing business, you're doing something wrong and it's inexcusably stupid to blame the government.
Anon @ 10:56 has it right -- the labor market has decoupled from the economy. It's not "what's good for GM is good for America" anymore, although the plutocrats running D.C. insist we all believe that. We have a bunch of workers with no work to do, and we'd rather blame them for being "lazy" than figure out what to do with them. bonddad's infrastructure project idea is great, but that's "socializm" so good luck passing that.
anon @ 11:34, I was just about to ask the same thing, about seasonal adjustment. From the AP:
Contributing to the surprisingly scant job gains in Friday's report was the difficulty the government had in adjusting for seasonal factors, economists said.
I dont know if that could ruin the whole report, and I think bonddad makes some good points, particularly #1. But I do wonder about the seasonal adjustment, given how baffling this report is.
http://news.yahoo.com/s/ap/20101203/ap_on_bi_go_ec_fi/us_economy
Doubt in the seasonal adjust could explain why the market didn't sell off the way it should have given the huge disappointment.
One other factor may be the budgeting process for large businesses. Their ’10 budgets were built in 3Q ’09, when the outlook was much less rosy. These budgets called for little direct hiring and squeezed small business for every last drop, limiting small business hiring as well.
Budgets for ’11 are now booked. They should include more investment for domestic growth with direct hiring and more opportunity for small business. We should expect to see a pickup and steeper hiring slope by mid-1Q ’11, along with higher CapEx and a GDP growth rate trending slightly higher.
Anecdotally, I have two small manufacturers telling me they are having difficulty finding qualified workers. Pay decently ($15/hr) in a low cost-of-living area. Factory work in a decent work environment. Prospective employees turned off by the prospect of working OT! The one mfg saying others in his industry across the nation are having similar problems filling slots. Even our office got only a few responses to our ad for a salesman.
Not trying to say today's jobs report wasn't a let-down, but there could be an unexpected lag between job demand and finding qualified workers.
Imagine that, Uncle Toby -- workers who don't want to work overtime. Eurosocialist bastards! Don't they know that REAL workers spend at least 168 hours per week on the job??? More than that, if they can!
Personally (and seriously) I think "the workweek" should be reduced to 35 hours right now, with time-and-a-half up to 40 hours, and double time beyond that. We need to spread the precious few jobs that we DO have around to more workers.
@Uncle Toby, I'm rather curious to know what skills they were looking for that they couldn't find. Though this may point to part of the problem we have right now. If there are people who have those skills they may be stuck elsewhere in the country unable to move because of an underwater mortgage, etc.
I think that this report will prove to be an outlier. The other indicators...retail sales, good LEI numbers the last two months, declining first time unemployment claims, are all too good for this type of job numbers to be maintained. For reasons NDD said, I bet the number is raised at least to be more in line with the ADP report. I expect numbers in other months to show accelerating job growth. Just my 2 cents worth.
Tentative agreement with Andy, but if December disappoints it's indicative of a serious regression from recent good news.
One number is an outlier. Two is a trend.
I dont know if that could ruin the whole report, and I think bonddad makes some good points, particularly #1. But I do wonder about the seasonal adjustment, given how baffling this report is.
The last six months have been extremely disappointing from an employment perspective. While we saw nice increases before that time, since
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