the October 2011 Employment Situation report: not great, but still good

the report

The Bureau of Labor Statistics released its Employment Situation report for October 2011 before the opening of trading in New York on Friday November 4th.  The report showed continuation of a pattern that has become familiar over the past year.

The economy added 80,000 net new jobs last month.  The private sector added 104,00 new positions; state and local governments laid off 24,000 workers.

The unemployment rate dipped from 9.1% to 9.0%.

That’s good news.

But the economy needs to add well over 100,000 jobs just to absorb new entrants into the workforce.  So the decline in the unemployment rate is probably due to other factors than new job creation.  The figure may have been due to a statistical quirk, or to long-term unemployed persons giving up the search for work (and therefore no longer counted as being in the workforce).  Or it may have been due to the positive revisions made to the September employment figures (see below).

Nevertheless, the evidence indicates the economy is slowly healing itself.

The reporting pattern–private sector gains, public sector job losses– also makes it clear, I think, that any short-term stimulus funds from Washington that goes directly to state and local governments will temporarily stop their layoffs and let the full strength of the private sector shine through.  So the employment figures would likely improve immediately.

The economic issue is whether or not it’s good to do so.  Will it simply prolong a necessary adjustment by previously profligate local politicians, doing the country no long-term good?  The burning question in Washington is, of course, somewhat different.  The political issue  is which party the recipients of such help are likely to vote for in the 2012 election.

the revisions

As you probably know, the Establishment Survey for a given month, from which these job numbers are compiled, is collected over a three-month period from larger corporations and government bodies.  Each month’s initial report undergoes revisions over the two subsequent months, as more complete data are sent in.  Rising revisions tend to be the rule in a growing economy.  So they’re a good sign.

Revisions for August and September are upward.  I think they are the most significant part of this months’ report.

The August figures, which caused a political firestorm and a slump in the stock market, were initially reported as 0 new jobs.  That figure broke out into +17,000 jobs added in the private sector, offset by a loss of -17,000 government workers.  The September report upped those numbers to +57,000, with +42,000 private sector jobs added and (surprisingly) +15,000 in government.  The (final) revision in October boosted the figures further.   The final result is a gain of +72,000 private sector workers and +32,000 in government, for a total of +104,000.  That’s not far from the recent monthly average for job increases, suggesting the original poor figures were not real and simply a statistical accident.

The initial revision for September upped those results significantly as well.  Originally, they were reported as +103,000 new jobs, broken out into +137,00 new private sector positions and a loss of -34,000 government jobs.  They now stand at +158,000.  A very strong 191,000 jobs were created in the private sector, offset by a loss of -33,000 state and municipal government workers.

What makes the September figures stand out is that regular monthly gains of 200,000 or so new jobs would be enough to start the unemployment rate trending downward.

investment implications

The October report shows, I think, that world stock markets were too quick to read the initial poor August figures as indicative of a new, weaker, economic trend.  Subsequent data, not only from the BLS, but also from other macro indicators and from the earnings reports of publicly traded companies, show that the US economy is doing the opposite–slowly gaining strength.

Very recent stock market is showing support for the idea that recovery’s pace is accelerating markedly, through the strong performance of the Materials, Energy and Capital Goods sectors.  I’m reading this as a counter-trend adjustment of relative valuation–meaning only that the spread between continuing market leaders and other stocks had gotten to wide.

The September job additions, however, and possibility that they will be revised up in coming months, suggest that the current move of these three sectors may have a sounder footing than I’m willing to admit.  I’m not changing my stance yet.  I think that I have to pay very close attention to next month’s job report, however.

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