The November jobs report showed a decrease in the unemployment rate, down to 8.6% while the US added about 120,000 jobs. Good news? As I’ve mentioned before, and will continue to mention ad infinitum, 120,000 jobs added per month is the minimum number needed in order to keep the relative employment level unchanged. The population increases about 240,000 people a month, and we have to add about half that number to stay even. So, if we barely added enough jobs to cover the population increase, how is it the unemployment rate dropped so dramatically?
[Let’s not even mention the fact initial unemployment claims spiked above 400,000 the week the December jobs report was released]
There are two answers hidden away in the report. First, over 300,000 people left the workforce, and the second reason was a surprise in the household survey:
The unemployment rate, derived from a separate survey of households, was forecast to hold at 9 percent. The decrease in the jobless rate reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force.
“You’d like to see the unemployment rate coming down when people are coming into the job market, not disappearing,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Besides a lot of people giving up on finding jobs, the household survey also found a large number of people reporting themselves as self-employed over the last few months. It appears many of the frustrated and longterm-unemployed workers have finally been stretched to the limit and are setting out on their own.
This situation is open to interpretation, both positive and negative. The positives are obvious, people are finding a way to produce goods and services for each other, and presumably, increasing the wealth of the nation. But, we don’t know about the quality, permanence or nature of these new jobs.
I know guys who, to make ends meet, are making venison sausage and doing basic butchery for lazy hunting friends. I’ve met people who are making leather and fur mittens in their homes for extra cash (we’re talking young people in prime working age, not retirees). What percent of these million newly self-employed are going to find any level of stability?
Remember, we’re seeing this jump after several years’ worth of high unemployment. This means these people waited a long time before attempting to set out on their own. That is not something that signals confidence. If anything, it shows most of these workers waited around as long as they could for something else. Not a good sign. It’s desperation, not cockiness.
And let’s not forget the payroll (or ‘establishment’) survey. The large, stable, successful businesses that survived the recession added just 120,000 jobs. And most of those were retail, many temporary/seasonal. That does not signal growth. Companies aren’t finding new ways to make money. Perhaps they’re expanding slightly above the rate of the population increase. But that’s it. [An aside, increasing population invariably should mean increasing demand, so we should always see some growth in employment from existing firms as they work to absorb a larger customer base (if you don’t see that growth, you have a possible signal of weakness in that company).]
My view is that the job market moved sideways again in December. It’s not good news. It’s not bad news. Companies barely hired enough people to cover the increase in population. 315,000 people just up and quit looking for work. Perhaps a couple hundred thousand people over the last month or two have gotten so desperate that they’re attempting to chart their own course. (The household survey and Gallup’s polls show between 200,000 and 300,000 extra people a month reporting as employed without a corresponding increase in the establishment survey. Thus, I believe that number will fluctuate wildly so I don’t want to be too specific. Maybe as many as 500,000 people have taken the self-employment route since October.)
The problem with moving sideways? You don’t get to the light at the end of the tunnel that way. I want some unambiguous number. I want to see growth commensurate with other recoveries. I want jobs.
- The Unemployment Rate Drops, but Economists Aren’t Smiling (businessweek.com)
- Jobs number out and very disappointing – UE went “down,” but job growth was far too slow (americablog.com)
- Ongoing Developments in the Unemployment Conundrum (forbes.com)
- Why Did the Unemployment Rate Drop? (blogs.wsj.com)
- Curb Your Enthusiasm About The Latest Unemployment Report (forbes.com)