Friday’s job report was decidedly mixed. Private employers added 67,000 jobs–more than expected, but still tepid. Meanwhile the unemployment rate ticked up to 9.6%, and the U-6 measure of underemployment moved up to 16.7%:
(As you may recall, the U-6 measure includes the officially unemployed, marginally attached workers, and those who are working part-time but want full-time work.)
Both the headline unemployment rate (U-3) and the underemployment rate (U-6) are below their peaks of late 2009, but have basically been moving sideways. That’s much better than the sharp increases in 2008 and most of 2009. But we have a very long way to go.
The headline jobs report on Friday was disappointing, as temporary Census workers accounted for almost all of the 431,000 of May’s increase in payroll jobs. As the economics team at PNC put it, the jobs report was “all frosting, no cupcake.”
The household survey provided a little more substance, as the headline unemployment rate fell to 9.7% in May from 9.9%. More encouraging, the U-6 measure of underemployment (which includes not only those who are unemployed but also marginally attached workers and those who are part time for economic reasons) fell sharply. The underemployment rate was 16.6% in May, down from 17.1% a month earlier (and from its peak of 17.4% last October):
As you can see, the headline unemployment rate (U-3) and the underemployment rate (U-6) have been moving sideways or slightly downward over the past eight months. That’s a step in the right direction after the sharp increases in 2008 and 2009. But we have a very long way to go.
In its recent Going for Growth report, the OECD concludes that the economic and financial crisis will leave an unwelcome legacy: a permanent reduction in economic activity. This loss averages about 3% of potential GDP across the 20 member countries for which the OECD was able to make these estimates.
As the following chart shows, those losses differ greatly across countries:
Ireland and Spain are the clear losers, with the crisis cutting economic activity by more than 10%. Despite being a catalyst for much (but by no means all) of the crisis, the United States faces one of the smallest losses. The 2.4% reduction in potential U.S. GDP is a sobering hit, but is less than that faced by 16 of the other nations.
Google recently released some major improvements in its public data efforts. If you click on over to Public Data, you will find a much broader range of data sets including economic information from the OECD and World Bank, key economic statistics for the United States, and some education statistics for California. Google has also included more tools for visualizing these data, from standard line charts to the evolving bubble charts that have made Hans Rosling such a hit at TED.
As an example, I made a flash chart of state unemployment rates from 1990 to the present. Puerto Rico (which counts as a state for these purposes), Michigan, Nevada, and Rhode Island currently have the highest unemployment rates, so I thought it would be interesting to see how they stacked up against the other states over the past twenty years.
WordPress doesn’t allow me to embed Flash, but if you click on the image above and then click play, you will see the evolution of state unemployment rates over time. (Spoiler alert: All those colored bars move sharply upward toward the end of the “movie”.)
Long-time readers may recall my series of posts criticizing Google for directing its users to unemployment data that have not been seasonally adjusted. Happily, Google now allows the user to use either seasonally adjusted or non adjusted data. Two cheers for Google.
Why only two cheers rather than three? Because Google still directs unsuspecting users to unadjusted data–without the ability to switch to seasonally adjusted–if they do a Google search on “unemployment rate United States“. That’s a big deal, particularly for February 2010 when the official unemployment rate was 9.7%, but the unadjusted figure reported by Google was 10.4%.
Clearly, the two parts of Public Data need to integrate a bit more.
The most encouraging item in todays jobs report was the sharp drop in underemployment (which includes not only those who are unemployed but also marginally attached workers and those who are part time for economic reasons). The underemployment rate fell to 16.5%, down from its peak of 17.4% last October and from 17.3% in December:
The headline unemployment rate also declined; it now stands at 9.7%, down from its 10.1% peak in October and from 10.0% in December.
These declines are encouraging, but the labor market obviously has a long way to go. Just how far was reinforced by BLS’s updated figures on the number of payroll jobs. Total job losses now stand at 8.4 million since the recession began at the end of 2007.
(This is a slightly edited version of a piece that appeared yesterday over at e21.)
As policymakers ponder whether and how they might be able to do more to encourage job creation, they should keep in mind that the monthly payroll job figures [e.g., -85,000 in December] are the net result of literally millions of hiring and firing decisions each month. In addition to the well-known payroll data, the Bureau of Labor Statistics also provides information about the monthly pace of hiring, firing, etc. Those data, known as the Job Openings and Labor Turnover Survey or JOLTS, allow us to track the overall dynamism of U.S. labor markets and the relative balance of gross job gains and losses.
As shown in the following chart, the total number of new hires each month tracks fairly closely over time with the number of people who separate (either voluntarily or involuntarily) from their jobs:
As you would expect, new hires were higher than separations in the middle of the decade when employment was growing. Since the start of the recession, however, separations have outstripped hires by a wide margin.
As the chart shows, overall labor market activity has plummeted over the past two years. New hiring has fallen by more than 1 million workers per month. Employers hired more than 5 million new workers each month back in 2007, but have recently been hiring only slightly more than 4 million. Separations show a similar pattern, as about 1 million fewer workers are leaving their jobs each month than did before the recession.
The decline in separations may seem surprising at first, but is easily understood when separations are divided into layoffs and discharges (i.e., involuntary separations) and quits (i.e., voluntary separations):
As you would expect, layoffs and discharges increased sharply during the recession. During the depths of the financial crisis in late 2008 and early 2009, an average of more than 2.5 million workers lost their jobs each month. The pace of layoffs has since slowed—about 2.1 million workers lost their jobs in November—but remains above levels consistent with growing employment.
Quits, meanwhile, have fallen off a cliff. An average of 1.8 million workers left their jobs voluntarily each month during 2009, about 40 percent lower than the 3.0 million pace a few years ago. In short, many fewer workers are finding opportunities to move to better jobs.
The JOLTS data suggest that the pace of quits may be one of the best signs of a healthy labor market. The uptick in November—to the highest level in ten months—is thus welcome and something to keep an eye on in coming months.
The positives are fewer, so let’s start with them:
With job losses of 85,000, December was the second-best (or, if you prefer, second-least-bad) month since January 2008.
With today’s revisions, November actually showed job gains of 4,000, the first increase since December 2007.
Put that all together, and job losses averaged 69,000 per month in the last quarter of 2009. That’s unwelcome, but much better than the average of 691,000 jobs lost in each of the first three months of the year.
Employment in temporary help services–often viewed as a leading economic indicator–increased by 46,500 in December.
And here are the negatives:
December’s job losses were much larger than most forecasters had predicted.
The upward revision to November job growth happened only because October jobs were revised down, making November look better. The actual level of November jobs was also revised down (by 1,000).
Although the unemployment rate was steady at 10.0%, the details beneath that figure were horrible. Household-reported employment fell by 589,000; the only reason that the unemployment rate stayed constant is that even more people–661,000–dropped out of the labor force.
The labor force participation rate thus fell to 64.6% and the employment-to-population ratio fell to 58.2%, the lowest since 1985 and 1983, respectively.
The underemployment rate (U-6) increased to 17.3%.
Bottom line: The economy is growing (as suggested by other data), but that growth is not yet translating into new jobs.
Payrolls fell by 11,000 in November, the smallest decline since the recession began.
The unemployment rate declined to 10.0%, down from 10.2% in October.
Jobs losses in September and October were smaller than previously reported (by a combined 159,000).
Average weekly hours increased from 33.0 to 33.2.
Temporary help services, often viewed as leading indicator, added more than 52,000 jobs.
The underemployment rate (U-6) dropped from 17.5% to 17.2%.
In short, almost all the key measures moved in the right direction in November (the one disappointing figure was average hourly earnings, which increased only a penny in November).
It’s possible that some of these figures were helped by seasonal factors (last November was so bad that the seasonal adjustment process might give a little extra boost to this November’s figures). But the breadth of better news–including the revisions and the hours–gives me some confidence that these data do reflect real improvements in the labor market.
Still, we shouldn’t get too excited. We need the economy to add jobs–preferably 100s of thousands–each month if we are ever going to get unemployment down, so losing 11,000 is still bad news in an absolute sense. But today’s report is a step in the right direction.
Nationwide, unemployment has averaged 8.6% over the past twelve months, but that average conceals enormous variation.
At one extreme, unemployment has averaged just 3.6% for white women age 25 to 44 who have a college degree.
At the other extreme, unemployment has averaged 48.5% for black men age 15 to 24 who don’t have a high school degree.
(The NYT uses a twelve-month average in order to smooth out statistical noise in the estimates of unemployment for narrower demographic groupings. By way of comparison, note that the national unemployment rate was 10.2% in October, much higher than the twelve-month average of 8.6%.)
Kudos to Floyd Norris over at the New York Times for characterizing total job losses to date as 8 million jobs, not “just” 7.2 million. As I discussed on Friday, the Bureau of Labor Statistics estimates that the number of jobs in March 2009 was 824,000 lower than it previously thought. But BLS won’t include this adjustment in its official data until early February.
The official, as-yet-unadjusted data indicate that 7.2 million jobs have been lost since the recession started in December 2007. The future revision to March figures, however, implies that a better estimate would be 8 million.
We can now expect several months in which commentators use different figures for total job losses. Those steeped in the details, like Norris, will use the 8 million figure. Those less-attuned to the details, like the authors of the NYT’s lead editorial (just four pages after Norris’s article), will use the 7.2 million figure.
Norris also addresses the obvious question: Why did BLS miss the March level of jobs by such a large amount? The answer is that BLS has to estimate jobs gained and lost at certain employers, and their model is not doing as well as we (or it) would hope:
The official job numbers are based on a monthly survey of employers, augmented by something called the “birth-death model,” which factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey.
Victoria Battista, an economist at the Bureau of Labor Statistics, said the bureau was looking at whether that model needed to be changed, as well as at other possible issues, such as changing response rates to the questionnaire sent out to employers each month.
The newest revision is called a “benchmark revision.” Such revisions are disclosed each October, and led to reductions in job totals in both 2007 and 2008. But the changes those years were tiny when compared with the changes this year.
For the 12 months through last March, the birth-death model added 717,000 jobs to what the bureau would have reported had it relied solely on its survey.
While the government uses the survey of employers to estimate the number of jobs, the benchmark revisions are based on reports from states on the number of employees for whom unemployment insurance premiums are paid. Those numbers take longer to be available, but are considered to be more reliable.
You must be logged in to post a comment.