Friday, January 4, 2013

December jobs report: a lukewarm end to 2012

- by New Deal democrat

2012 closed out with a lukewarm report. By now you probably know the headlines: +166,000 jobs and the unemployment rate steady at 7.8%. October and November were revised up by +14,000. The broader U-6 unemployment rate stayed at 14.4%.

As I usually do, let's first look at the more forward-looking indicators in the report, which tell us where we are likely to go from here. These were mixed, with somewhat of a positive bias:

- Manufacturing added 25,000 jobs.

- The manufacturing workweek increased 0.1 hours to 40.7 hours.
Since manufacturing generally leads the rest of the economy, this is good. The workweek is one of the 10 official LEI and so will boost the December report.

- The positive revisions to prior months are also a good sign, as this generally happens in expansions but not in recessions.

But on the other hand,

- while the household report showed 28,000 jobs gained, this is still below the number of jobs 2 months ago. The household report tends to turn first at inflection points.

- 600 temporary jobs were lost. Temporary jobs also tend to lead.

- the number of workers unemployed for 0 - 5 weeks increased by 80,000. This is a more forward looking indicator than initial jobless claims.

Other more coincident indicators were generally good:

- the index of aggregate hours worked in the economy increased by 0.4. This is the second strong increase in a row. Aggregate hours are thought to be an indicator at least some members of the NBER consult to determine expansions vs. recessions.

- average hourly pay increased $.07 to $23.73. YoY pay has increased by 2.1%. This is the first time in two years that YoY pay has increased more than YoY inflation. In real terms, Joe Sixpack has more to spend.

- construction jobs increased by 30,000. Of those, 12,000 were residential construction jobs. This is more evidence of the housing comeback.

- overtime remained steady at 3.3 hours.

- the employment to population ratio remained at 58.6%. This is still poor, and we will see the usual monthly arguments about how much of this is due to Boomer retirements.

This was a positive report, but as usual, not nearly good enough to really make a dent in the country's unemployment problem. The muted but mixed leading indicators in the report suggest the economy will continue to just shamble along.

P.S.: I would be remiss if I didn't point out that this puts yet another nail in the coffin of ECRI's recession prediction. According to them, we are now 5 months into a recession and payrolls are still increasing. Of the 11 recessions since WW2, only 4 showed employment peaks after the onset of the recession, by 1, 2, 3, and 8 months - the last in the abrupt 1973-74 recession brought on by the Arab Oil Embargo. [UPDATE: in percentage terms, those increases were less than 0.1%, 0.2%, 0.3%, and 0.9% in the case of the oil embargo. In the last 5 months, employment has increased 0.6%.] In other words, it is possible but very unlikely that the positive reports would go on this long into an economic contraction.

From Bonddad:

From the BLS:

Nonfarm payroll employment rose by 155,000 in December, and the unemployment rate was unchanged at 7.8 percent, the U.S. Bureau of Labor Statistics reported today.

A classic good and bad news headline.  The number of jobs is good but certainly not great.  However, the fact the unemployment rate didn't drop is a concern.  Statistically, the number of unemployed increased by more or less the same amount as the civilian labor force.  This means that more people entered the labor force, probably seeking employment.

Total nonfarm payroll employment increased by 155,000 in December. In 2012, employment growth averaged 153,000 per month, the same as the average monthly gain for 2011. In December, employment increased in health care, food services and drinking places, construction, and manufacturing.

It's interesting that for the last two years overall employment growth as averaged 155,000/month consistently.  That's not the most impressive rate of growth, as it's barely more than needed to absorb the population growth and hence, meaningfully lower the unemployment rate.  It also indicates there is a clear concern on the part of businesses regarding the hiring of new personnel.  Something -- or a group of "somethings" -- is clearly holding them back. 

In December, the average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.8 hours. (See tables B-2 and B-7.) 

Average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $23.73. Over the year, average hourly earnings have risen by 2.1 percent. In December, average hourly earnings of private- sector production and nonsupervisory employees increased by 6 cents to $19.92. (See tables B-3 and B-8.)

Increases in hours worked and the overall workweek are always welcome.  In addition, these figures usually move in small increments, so the small rise is no surprise or overly concerning.

The change in total nonfarm payroll employment for October was revised from +138,000 to +137,000, and the change for November was revised from +146,000 to +161,000.

It's good that we don't see a massive downward revision to these numbers.  In addition, the upwardly positive revision to November is encouraging.