employment in the US: the November Employment Situation and JOLTS

The Labor Department’s Bureau of Labor Statistics released its Employment Situation report for November last Friday. The headline numbers, a 9.8% unemployment rate and the addition of 39,000 jobs vs. the 140,000 that the consensus of economists had predicted, caused a furor both in Washington and in the news media.  Wall Street, however, shrugged the news off, after a brief morning dip.

the Employment Situation

There are, as usual, a couple of quirks in the November report, but nothing that alters the headline number significantly.  The 39,000 gain in jobs breaks out into a boost of 50,000 to private payrolls and a drop of 11,000 in government employees.  Given the parlous state of government finances it seems to me this is a trend that will continue, despite the penchant for elected officials to increase spending no matter what.

The retail sector lost 28,100 jobs, at a time when holiday hiring should be increasing.  Retailers have been announcing that they are in fact adding to their staffs, but a lower rate than in prior years.  So the apparent loss of jobs could well be a function of the way the Labor Department makes its seasonal adjustments to data.  At some point, this should correct itself.

As you may know, the monthly numbers are revised twice after the initial report, as more survey respondents check in.  The September figures, for example, initially reported a loss of 159,000 government jobs (mostly teachers) and a gain of 64,000 in the private sector.  The final tally announced in the November report is a gain of 112,000 private sector positions and a loss of 136,000 in government.  That’s a net gain of 81,000 jobs.

The October report has also gained 21,000 jobs in its initial revision.


The Labor Department also produces a periodic Job Openings and Labor Turnover survey.  The next one comes out at 10am New York time today, a few hours after this is published.  The report will likely show that there are about 3 million unfilled job openings in the US, up by about 800,000 from the recession low.

No one really knows why these available jobs aren’t immediately filled.  The two leading causes posited are:  the jobs require technical skills that the currently unemployed generally don’t have; or the unemployed owe more in mortgages on their houses than the houses are worth, so people are unwilling/unable to move.

the real issue

It’s possible that the November jobs numbers will be revised up to approach the consensus forecasts in the upcoming December and January revisions.  And it is true that there are almost a million more Americans employed today than at the low point for employment in December 2009.

But about 100,000 new workers on average enter the labor force each month, mostly as they complete school or technical training.  In a sense, then the first 100,000 new jobs created in the economy each month go to absorb these new workers.

Let’s say that the economy is really generating about 200,000 new jobs a month–far above what the official figures say– right now, only we don’t know it yet.  How would that affect the unemployment rate or the roughly 8 million workers who lost their positions during the recession?

If so, that number would be enough to take care of all the new workers entering the labor force, plus reduce the number of unemployed by 100,000 a month.  That’s 1.2 million a year.

How many years at this level of job creation until the 8 million who lost their jobs are reabsorbed into the workforce?  Six years and eight months. In other words, at a very generous estimate of the way the economy is now expanding, we won’t have full employment until the second half of 2018.

That’s the real problem.

At first glance, this is purely a domestic political/social problem, not an investment one.  The work force is expanding.  Consumer confidence is rising.  Foreign tourism is on the rise.  And over half of Wall Street’s profits come from sources outside the US.  So S&P earnings will likely continue to rise at a healthy clip, even if unemployment declines at only a snail’s pace.

A key question for investors, however, is whether unemployment will remain an issue of secondary concern.  One could argue that the Fed is carrying out quantitative easing for purely social, not economic, reasons–even at the risk of negative economic effects.  It remains to be seen if this is the last action either the Fed, or Congress, decides to take.

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