Slow, Steady, Weak, Uncooked Growth in Jobs Report
by Sinclair Noe
DOW + 34 = 13,610
SPX -0.47 = 1460
NAS – 13 = 3136
10 YR YLD +.07 = 1.73%
OIL – 1.79 = 89.92
GOLD – 9.00 = 1782.30
SILV – .46 = 34.61
PLAT – 13.00 = 1710.00
The first Friday of each month brings the jobs report and it is always important economic data. This is the first Friday in October, in an election year; so, it is really big news. We’ve discussed at great length that the jobs report is imperfect; even after revisions, the report is imperfect. Still, the report provides a manner of comparison, and it is the best we have. It provides an apples to apples comparison.
The economy added 114,000 jobs in September. The unemployment rate fell to 7.8% from 8.1% The unemployment rate is the lowest since 2009, and the first time the rate has dropped under 8% during the Obama administration. The private sector has now added jobs for 31 consecutive months. Still, 114,000 new jobs would have to be considered weak growth. The best guesses are that the economy would have to generate at least 250,000 jobs each month for several years to reduce unemployment to around 6%. So, the first question is why did the unemployment rate drop when the number of new jobs was only showing weak growth?
The Labor Department revised employment figures for August and July to show somewhat faster job growth in late summer, mostly because of government hiring. State and local governments accounted for virtually all of the added job gains, mainly through the hiring of more teachers. The number of new jobs created in August was revised up to 142,000 from an original estimate of 96,000. July’s figure was revised up to 181,000 from 141,000. Monthly job growth averaged 146,000 in the third quarter, down from 226,000 in the first three months of 2012.
In September, the biggest increase in hiring took place in health care, finance, and transportation and warehousing. The health-care sector added 44,000 jobs, banks and other financial institutions hired 13,000 workers (a trend that might turn negative with the already announced layoffs at some of the big banks) and 17,000 jobs were added in transport. The construction trade added 5,000 workers in September and just 1,000 jobs gained in August. The government added 10,000 jobs last month and a combined 73,000 jobs in the third quarter. That’s the biggest increase in full-time jobs since mid-2008
Manufacturers reduced employment for the second straight month, cutting 16,000 jobs in September following a 22,000 drop in August. This is important because manufacturing jobs are generally considered good paying positions. So, the gains were concentrated in health care, transportation and warehousing, and finance. Manufacturing employment dropped, which corroborates weakness in factory activity that may reflect the slowing global economy and worries about possible problems from the fiscal side of the equation; in other words, what might happen if the politicians continue to act like blithering blobs and nattering nabobs of negativity.
Average hourly wages rose 0.4% in September to $23.58, they’ve only climbed 1.8% over the past year. The average hourly workweek, meanwhile, edged up 0.1 hour to 34.5 last month. The workweek usually rises when the economy gets stronger. Hours have been essentially flat for the past year.
According to the Bureau of Labor Statistics, the number of people with full-time jobs increased by 838,000 in September to 115.2 million, while the number of people with part-time jobs declined by 26,000 to 27.7 million. In other words: once you net it out, all of the gains in employment were due to full-time jobs.
There was also a large increase in the number of people who want a full-time job but who are forced to settle for less than 35 hours of work because of the tepid economy or weak demand at their workplace. The rise in involuntary part-time work certainly seems to indicate the economy remains weak, but there are signs of improvement. By the middle of 2009, the number of part-timers had increased by 2.8 million at the same time that full-time positions fell by 8.9 million. In the past year, 2.7 million more Americans are working full time, while the ranks of the part-timers has increased by 91,000.
Now, let’s go back to the first question: how did the unemployment rate drop 0.3% while only adding 114,000 jobs? Well, there are two jobs reports, not one; there is the establishment survey; there is also the household survey. Let’s break it down.
For the establishment survey, each month the Labor Department asks 141,000 business and government agencies representing almost a half million work-sites, how many people they hired. The establishment survey is used to calculate the number of new jobs created or lost each month. In September, the economy added a net 114,000 new jobs.
The household survey involves sending out questionnaires to 60,000 households and asking if these people found work. This is the figure used to calculate the unemployment rate. In September, the household survey showed an 873,000 increase in the number of people who said they found work. So, you are probably thinking that number is a mistake. Nope. The household survey is based on a smaller sample than the establishment survey, therefore the household survey is more erratic, less precise, and more volatile. Still, there is a certain predictability to the volatility.
In August and July, the household survey revealed a combined 314,000 decline in the number of people with jobs. Then September shows a 873,000 spike. The same thing happened earlier in the year. The household survey jumped 847,000 in January and 428,000 in February. It then fell by a combined 200,000 in the next two months. Also, September tends to be a volatile month for the household survey, probably because of the jobs associated with the school year and the upcoming holiday season. And then the number are revised as information is updated. It is possible that next month we could see gains in the establishment survey, and the household survey could see the unemployment rate move higher.
So, you can try to smooth out the numbers. The three-month average of job gains for the third-quarter is 146,000 per month, down from earlier in the year. The U6 rate, which includes those who can only find part-time jobs or have given up looking for work. The U6 jobless rate was unchanged at 14.7% last month.
Even though payroll growth was sluggish, this employment report was an improvement over recent reports, especially with the upward revisions, the increase in hourly earnings, and the increase in the 25 to 54 employment-population ratio. This is sometimes referred to as the participation rate and it shows the 25 to 54 age range finding jobs. We also have a demographic shift taking place. You’ve probably heard that 10,000 boomers hit retirement age every day. We are seeing a major demographic shift in the labor market, and there probably are a whole bunch of people who are not counted as unemployed but rather not counted because they are considered retired. There are a lot of people with a lot of experience and expertise that need to be better utilized.
Again, you have to compare apples to apples, and if you do that you will see that we have a pretty solid trend of job growth; it’s a solid trend of weak job growth but it is job growth. Since February 2010, the economy has added 5.2 million private payroll jobs. Even as private-sector jobs have grown, the economy has lost public-sector jobs since April 2009. Since President Obama took office in 2009, private non-farm payrolls have risen by 514,000 and government payrolls have dropped by 575,000. Now, if you add in the Bureau of Labor Statistics’ benchmark preliminary revisions (which offer an even more accurate look at jobs figures), then the private sector has created 967,000 jobs since Obama took office, while governments at all levels have shed 642,000 jobs.
It took a long time, but the Obama administration can now report positive job growth on their watch and an unemployment rate under 8%. Still, there is nothing great in these numbers; there are still 23 million un-or-under employed. The jobs picture is still bad but it is showing slow consistent improvement.
And it is 5 weeks before the election. And some people are now claiming that it is a grand conspiracy. The books are cooked. Jack Welch, the former CEO of GE tweeted: “Unbelievable jobs numbers.. these Chicago guys will do anything.. can’t debate so change numbers.” And while this may seem to be a wild accusation of extreme corruption, you have to consider the source. If anybody knows about cooking the books, it would be the former head of GE Capital who managed to beat quarterly earnings estimates by exactly one penny.
Bloomberg reports on Conn Carroll of the Washington Examiner who thinks it’s a bottom up conspiracy, with some 60,000 household survey respondents lying and saying they got jobs just to make the president look good.
That’s the best one I heard today, and I think that if those 60,000 households are not fully employed, then really, there is something terribly wrong. Think of all these people who were able to network and communicate and pull off this massive conspiracy. My God, these people must be diabolical geniuses. If they’re not employed they should be, because these are really clever people.
As far as the political implications of today’s jobs report. Well, you tell me. I’m guessing the economic cake is largely baked and late changes in the economy probably aren’t that consequential.
I turn your attention to a couple of good articles on the presidential debates.