The Jobs Report Is Better but Not Great

 | Dec 07, 2012 | 10:01 AM EST
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There was much trepidation going into this jobs report. Investors should be pleasantly surprised that 146,000 new jobs were created and that the unemployment rate ticked down to 7.7% from 7.9%. Going into the report, estimates for payroll gains from Bloomberg were just 85,000, with the jobless rate holding steady at 7.9%. This comes after the ADP report that said that Hurricane Sandy cut the number of new jobs by 86,000, to 118,000 new jobs.

However, job gains in prior months were revised down. The change in total nonfarm payroll employment for September was revised to +132,000 from +148,000, and the change for October was revised to +138,000 from +171,000.

What about Sandy? Here's what the Bureau of Labor Statistics had to say on the storm's impact: "Our survey response rates in the affected states were within normal ranges. Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November." Still, you may want to check out the little-followed data on state employment results, which will be released on Dec. 21, for more information on jobs created or lost in affected states.

Still, many of the job gains were in typically low-paying sectors. Retail trade employment rose by 53,000 in November and has increased by 140,000 over the past three months. That's a disproportionate amount of recent job gains, about a third or so of new jobs. Employment in wholesale trade edged up over the month (+13,000). Since reaching an employment trough in May 2010, the wholesale trade industry has added 228,000 jobs. Job gains in these two sectors may reflect increased expectations for consumer spending.

In November, leisure and hospitality employment continued to trend up (+23,000). Over the past 12 months, the industry has added 305,000 jobs. Food service jobs added 9,000 workers last month and more than 260,000 jobs over the past year.

On the other end of the income spectrum, employment in the often-better paying professional and business services rose by 43,000. Employment continued to increase in computer systems design and related services. And health care employment continued to increase in November (+20,000). Health care has added an average of 26,000 jobs per month this year. Information employment also edged up in November (+12,000), with the increase concentrated in motion picture and sound recording (+15,000).

Then there are the weaker goods-producing sectors. Belying recent signs of strength in housing, employment in construction declined by 20,000 in November, with much of the loss occurring in construction of buildings (-11,000). These jobs may be more affected by Sandy, though. Since early 2010, employment in construction has shown no clear trend.

Manufacturing employment changed little over the month. Within the industry, job losses in food manufacturing (-12,000) and chemicals (-9,000) more than offset gains in motor vehicles and parts (+10,000) and wood products (+3,000). On net, manufacturing employment has changed little since this past spring. This may reflect worries about the fiscal cliff and the fading of the inventory cycle, as I recently wrote.

The average workweek for all employees on private nonfarm payrolls remained at 34.4 hours in November. However, we see better signs in the details. The manufacturing workweek edged up by 0.1 hour to 40.6 hours, although factory overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees edged up 0.1 hour to 33.7 hours.

Earnings grew more than in the prior month. In November, average hourly earnings for all employees on private nonfarm payrolls rose by $0.04 to $23.63, after a $0.01 drop the month before. Over the past 12 months, average hourly earnings have risen by 1.7%, a bit higher than we've seen recently but not higher than inflation. In November, average hourly earnings of private-sector production and nonsupervisory employees edged up by $0.03 to $19.84, after a $0.01 gain the prior month.

If you couple hours worked with wage gains, the index of aggregate weekly payrolls increased by 0.3% for all employees and by 0.6% for production and non-supervisory personnel. These figures will flow into aggregate level measures of consumer wage and salary incomes and might be supportive of consumer spending.

The household survey showed a bit different picture. The unemployment rate dropped because the labor force contracted by 350,000 people, bringing the labor force participation rate down to 63.6% from 63.8% but matching levels the month before that. The number of employed people fell by 122,000, even as those classified as "unemployed" fell by 229,000. Combined, this brought the employment to population ratio down to 58.7% from 58.8%, the same as in September.

Those who are not in the labor force grew by 542,000. Even though the numbers of the long-term unemployed fell by 216,000, to 4,786,000, the numbers of the marginally attached grew to a non-seasonally-adjusted 2,505,000 from 2,433,000 (including a 166,000 increase in the number of discouraged workers). That means that some long-term unemployed dropped out of the labor force. However, those who are working part-time for economic reasons fell by 168,000, to 8,176,000 people.

All of that combined, the broad measure of underemployment, the U-6 rate, fell to 14.4% from 14.6%. A year ago, this rate was 15.6%. This is good news, though this rate is still high.

On balance, the labor market is slowly improving even though some details are mixed. Even though wage gains are still on the low side, this is at least a bit better than the month before, as this is unlikely to be affected by Hurricane Sandy. Still, the report, though decent, is not uniformly good, but the good news is that it is better than some expected it to be.

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