RGE’s Wednesday Note – No Comfort in November for U.S. Employment
With payrolls growing by an anemic 39,000 and expansion in private payrolls slowing sharply to 65,000, the November U.S. employment report was quite disappointing. Given the slight improvement in other recently released economic data, we expect subsequent reports to paint a better picture than this latest appraisal, and upward-revised data for October and September offer a reminder that November data are subject to revision. Nevertheless, the strength of the economy clearly remains inadequate to create jobs quickly enough to bring about a significant, near-term reduction in the now 9.8% unemployment rate. In “U.S. Employment Report: A Disappointing November,” available exclusively to clients, we examine the recent data for signs of the employment situation going forward.
With manufacturing employment and activity declining, we have been looking to the services sector to provide relief. Driven by temporary and health-care hires, services sector employment gains outpaced the decline in manufacturing (a loss of 13,000 jobs in November). But there is no ignoring the bad news: The increase of 50,000 in private payrolls was the smallest monthly gain since January 2010 and well below the average gain of 133,000 over the past four months—a troubling development given the current and expected future reductions in payrolls by state and local governments. Moreover, the gain of 65,000 in private services payrolls, while positive, was less than half of the average pace of gains over the past three months.
Any improvement in wage growth and the average workweek would have been welcome news for consumer spending. November’s employment report offered no such respite. Average hourly earnings in the private sector remained largely flat. The average workweek of private employees (34.3 hours), average manufacturing overtime hours and both manufacturing and services workweeks all remained flat as well. Meanwhile, government payrolls fell 11,000, driven entirely by cuts in both education and noneducation employees at the local government level, which are expected to continue in 2011 as state and local governments struggle to balance their budgets in the absence of significant federal transfers to states.
The November household survey painted an even bleaker picture than the establishment survey: Employment dropped by 173,000 in November while the unemployment rate rose 20 basis points to reach 9.8%. The employment-to-population ratio—an alternative measure of labor market health unaffected by labor force swings—declined to 58.2 from 58.3 in October and 58.5 in September. Meanwhile, the median duration of unemployment rose for the third straight month to 21.6 weeks, while the percentage of people unemployed for more than 27 weeks rose to 41.9%. The long and increasing duration of unemployment is extremely worrisome, as it exacerbates skill-set erosion.
All things considered, it‘s hard to find good news in the November employment report. In contrast, the November ADP employment report (which has been perpetually inconsistent with the Bureau of Labor Statistics numbers this year) showed acceleration in private payrolls, and survey-based data indicated continued gains in both manufacturing and services employment. In late November, the four-week moving average of seasonally adjusted unemployment claims fell to 431,000, the lowest since mid-2008 and the lowest level seen since the beginning of the recovery. Finally, given the slight improvement in other economic activity in Q4, we do expect to see some improvement in future labor market reports.
Still, the November data clearly call for caution. The stall in the improvement in wages and the average workweek is especially concerning. Sustainable growth in aggregate consumption will be driven by wage growth, which needs to improve from its severely depressed levels. Most importantly, it is quite clear that future employment gains will be well below the levels required to make a meaningful dent in the unemployment rate, which will continue to be just shy of double-digit territory for some time—an issue to be explored in our forthcoming 2011 Outlook.
Comments are closed.