The 200,000

Written by Jeff Thredgold, President, Thredgold Economic Associates

January 10, 2012

The American economy registered one more sign of “better than expected” performance in December with the net addition of 200,000 jobs.  Financial market players had expected a rise of roughly 155,000 net new jobs.

In addition, the nation’s unemployment rate declined from an adjusted 8.7% rate in November to 8.5% in December, the lowest level in nearly three years.  The current 8.5% jobless rate compares to the 9.4% rate of one year ago, the 9.8% rate of December 2009, and the 7.3% rate during December 2008. 

The American economy in 2011 recorded its best job creation year since 2006, with the net addition of 1,640,000 jobs.  By comparison, the economy added 940,000 net new jobs in 2010.

While the latest data was favorable when compared to the past 3-4 years, it pales versus what is needed to restore American employment to more traditional levels.  The gain of 2.6 million net additional jobs during the past two calendar years has made only a dent in the 8.7 million net jobs lost in 2008 and 2009.  The current jobs recovery remains the weakest since the Great Depression.

Where the Jobs Are
Better employment news was definitely found in the nation’s goods producing sector.  Goods producing employment rose by 48,000 jobs in December, led by an estimated 23,000 gain in manufacturing jobs, a 17,000 rise in construction jobs, and an 8,000 rise in mining & logging employment.  

The rise in manufacturing employment of 218,000 net new jobs during 2011 was the best in 14 years.  The mining & logging sector added 89,000 net new jobs last year. 

Private-sector service providing employment rose by 164,000 jobs in December, led by an estimated 50,000 gain in transportation & warehousing jobs, the largest monthly rise in 15 years.  In this case, the seasonal adjustment may be a bit faulty, with an overstatement of job gains in December likely to be offset by a similar reduction in the January report.  Extensive job additions by the likes of FedEx and UPS during December to cover sharply higher online retail sales should fall out of the data in January.  Such a pattern has occurred the past two years.   

Education & health services employment rose by an estimated 29,000 jobs, with health care employment rising by 315,000 jobs in 2011.  Retail trade added 28,000 jobs, part of the estimated 240,000 job rise in 2011.  Overall government employment fell by another 12,000 jobs during the month, with a calendar year loss of 280,000 jobs.

8.5%...or 11.7%?
The 0.2% decline in the nation’s jobless rate was largely the result of legitimate gains in employment as measure in the “household” survey, as opposed to a big drop in the nation’s estimated labor force.  We have noted frequently that the household survey is typically more sensitive to new business startups or the expansion of small firms than is the more accepted “establishment” survey.  

Yes, the estimated labor force did decline by 50,000 people—those presumably too discouraged to continue to seek employment.  Yes, some of these people could be those who are now leaving the workforce and entering retirement, but damaging hits to investment portfolios of the past four years render this total as presumably quite low.   

It remains to be seen whether better news in U.S. job creation in recent months will be met by hundreds of thousands of people reentering the labor force—and pushing the unemployment rate higher unless and until they find a job.  The other question is whether discouraged workers will continue to leave the labor force—and push the nation’s jobless rate to more attractive but largely artificial lower levels. 

The Wall Street Journal noted in its Saturday edition that a decline in the nation’s labor participation rate…those of working age that are an active part of the labor force… has declined from 66% four years ago to 64% in the latest report.  Were today’s labor participation rate to be at 2007 levels, the nation’s unemployment rate would currently be closer to 11.7%!  

The Trivia

The “underemployment” rate, that which includes the officially unemployed, those working part-time who would prefer full-time employment, and those discouraged workers who have left the labor force but would accept a job if one were offered, declined to 15.2% in December from 15.6% in November

Average hourly earnings for all employees on private nonfarm payrolls rose by four cents (up 0.2%) to $23.24.  However, the gain of 2.1% during 2011 trails the estimated 3.0% consumer price index rise last year

The Bureau of Labor Statistics noted that the unemployment rate, following minimal revisions to prior data, averaged 8.9% in 2011, down from 9.6% in 2010 and 9.3% in 2009.  It was still, however, the worst three-year period for high unemployment since 1939-1941…

…ouch 

The Value of Education
No surprise here.  An increasingly sophisticated American economy demands and rewards those with skills and solid educational attainment.  The unemployment rate for those who did not finish high school was 13.8% in December, up sharply from November’s 13.3% rate.  The unemployment rate for those with a high school diploma but no college dipped slightly to 8.7% in December, versus 8.8% in the prior month.

The unemployment rate for those with some college or an Associate’s degree was 7.7% in December, up slightly from 7.6% in November.  And finally, the unemployment rate for those with a Bachelor’s degree and higher dropped sharply to 4.1% in December, versus 4.4% in November.

From Here?
Your guess is as good (or better) than mine.  The U.S. economy finished 2011 with the strongest quarterly performance of the year.  Most forecasts for the fourth quarter are around a 3.5% real (after inflation) annual rate.  The first half of 2012 is likely to be closer to a 2.2% real annual pace.

As usual, no shortage of headwinds will continue to impact the economy, with some having the potential to knock the recovery on its’ behind.  The European situation drags on and on, with little in the way of real leadership. 

Oil prices could rise sharply if the Iranian government continues to “saber rattle” about its nuclear ambitions and its willingness to close the Strait of Hormuz.  Political games in the nation’s capital between now and the end of February as to whether the payroll tax cut should be extended to the end of the year hold the (unfortunate) promise of damaging consumer and corporate confidence levels again…

…it’s always somethin’