More Jobs but at Lower Pay

 | Dec 02, 2011 | 10:27 AM EST
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The unexpected decline in the unemployment rate to 8.6% from 9% is good news at first glance, but it reflects people leaving the labor force. The economy added 120,000 jobs in November, in line with expectations, but these jobs were in low-paying industries.

Private employers added 140,000 jobs, as government continued to cut payroll. On the other hand, September jobs figures were revised upwards to a much stronger gain of 210,000 jobs from 158,000. October was revised higher to 100,000 jobs from 80,000.

The jobs created in November, however, were largely low-paying, which is not the making of a solid, middle-class jobs recovery. Retail added 50,000 jobs (Macy's increased its workforce by 4% for the holidays, for example), and food service added 33,000 jobs. Temporary staffing increased by 22,000 jobs, which is not indicative of a company's tentative plans to add staff, but likely reflects a shift in how they manage their workforce. After all, temp employees are easier to dismiss.

As you might expect with lower-wage jobs being added, the average hourly pay for all private-sector employees decreased by $0.02 , or -0.1%, with the average weekly paycheck falling by $0.76. Those who aren't managerial staff had an average hourly pay increase of $0.02, or 0.1%. We will have to wait to see how this compares to the inflation measure out next week to learn whether this reflects any improvement or deterioration to real earnings. The lack of gains in real earnings is one of my biggest concerns, though last month we did see an increase in real earnings as inflation fell.

Still, there were pockets of strength in the establishment survey. Healthcare added 17,000 jobs, continuing an ongoing trend in this sector. But this growth reflects an aging population and demographic changes more than improved economic growth. Despite this gain (and the temp, retail and food service gains), the rest of the economy added basically no jobs because the drop in government employment of 20,000 offset the small gains in other sectors.

Construction employment fell by 12,000 and manufacturing employment added just 2,000. The diffusion index -- a measure of industries reporting job growth vs. job cuts -- fell to 54.7 from 59.6, indicating the breadth of job creation across industries was less favorable in November compared to October.

The average workweek was unchanged, which doesn't indicate further hiring, as companies tend to add hours before adding bodies. The measure of aggregate hours worked, an indicator of broader economic activity, increased by just 0.1%. If we have strong gains in productivity, that would imply an increase in economic growth, but on the face of tepid growth in hours worked, it isn't consistent with robust economic activity in November, especially in areas such as manufacturing.

In the household survey, the number of unemployed people fell by 594,000, but the number of people "not in the labor force" swelled by 487,000 people, as the participation rate fell to 64% from 64.2%. Thus, the unemployment rate dropped because people dropped out of the labor force and weren't counted as officially unemployed.

However, there were 278,000 more people employed, according to the household survey, and the percentage of the population that is employed ticked up by a modest amount, to 58.5% from 58.4%. This very modest increase in the percentage of the adult working population should temper any enthusiasm for the drop in the unemployment rate as the labor force shrank by 315,000, even with the adult population growing by 172,000.

The number of discouraged workers who would like to have jobs but have given up looking rose by 129,000. It appears that the long-term unemployed (more than six months) may have given up on their searches as the number of long-term unemployed fell by 185,000 (or they may have settled for a retail or food service job).

Still, the number of people working part-time who would like a full-time job fell by 378,000, which means that either their work hours were increased to full-time or they dropped out of the labor force entirely. Given the number of part-time jobs were relatively unchanged, and the number of full-time employees increased by 323,000, many of these part-timers likely became full-time employees. As such, the broad measure of unemployment, the U-6 rate, which includes these involuntary part-timers plus discouraged workers and those "marginally attached to the labor force," fell to 15.6% from 16.2%, and this is a bit of good news.

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