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Vectra Bank Expert Jeff Thredgold

A Good Jobs Report

Written by Jeff Thredgold, President, Thredgold Economic Associates

February 8, 2012

After three years of essentially lousy employment reports, the January 2012 report was simply better.  Job growth exceeded expectations…it occurred in almost every employment classification…hours worked in various sectors rose…and the unemployment rate ticked down for the fifth month in a row.

The U.S. economy added an estimated 243,000 net new jobs during January.  In addition, previously estimated job gains of the two prior months were revised higher by 60,000 jobs. 

The nation’s unemployment rate declined again to 8.3% in January—the lowest in nearly three years—from 8.5% in December.  The current 8.3% jobless rate compares to the 9.1% rate of one year ago, the 9.7% rate of January 2010, and the 7.8% rate during January 2009.

Please note that the consensus forecast of economists was for a rise of roughly 135,000 net new jobs in January, with the unemployment rate staying at 8.5% or moving higher to 8.6%...…just shows you what we know…(ouch)

The Numbers
American goods producing employment rose by 81,000 jobs in January, led by an estimated 50,000 gain in manufacturing jobs, a 21,000 rise in construction jobs, and a 10,000 rise in mining & logging employment.  The U.S. Department of Labor’s Bureau of Labor Statistics (BLS) reports that the majority of the manufacturing employment rise was in durable goods manufacturing (products designed to last more than three years), including fabricated metal products, machinery, motor vehicles, and parts. 

US EmpAssembly line workers put in an average of 41.9 hours of work during the January survey week, the most since January 1998 (www.bloomberg.com).  The durable goods manufacturing sector has added 418,000 jobs over the past two years as auto sales have rebounded nicely.

The construction sector added an estimated 21,000 net new jobs in January, following a gain of 31,000 jobs the prior month.  Good weather in much of the country during January likely played a part in the employment rise.  The number of people unable to go to work because of bad weather, a proxy for the climate’s effect on the labor market, was 206,000 last month, less than half the 424,000 average for the month since 1976 (www.bloomberg.com).

The mining and logging sector added another 10,000 jobs during the month.  BLS reports that since a recent low in October 2009, mining employment alone has expanded by 172,000 jobs.
 
Private-sector service providing employment rose by 176,000 jobs in January, led by an estimated 70,000 gain in professional & business service jobs.  Leisure & hospitality added 44,000 jobs.  The food services component of the sector has added 487,000 jobs since a recent low in February 2010.
 
Education & health services employment rose by an estimated 36,000 jobs during the month.  Wholesale trade added 14,000 jobs during January, with sector employment rising by 144,000 jobs since May 2010.  Retail trade added 10,000 jobs during the month, with employment rising 390,000 jobs since December 2009.

Overall government employment fell by another 14,000 jobs during the month.  The sector has lost 276,000 jobs during the past year, with job eliminations in local government, state government (excluding education), and the U.S. Postal Service.

Trivia
The estimated number of unemployed people (those actively seeking jobs within the past 30 days but unable to find one) declined sharply to 12,758,000 in January versus 13,097,000 in December.  Of the total, 5.5 million have been without a job for six months or more

The “underemployment” rate, that which counts the formally unemployed, those working part-time who would prefer to work full-time, and those not seeking work but who would accept a job if one was offered, dipped to 15.1% in January versus 15.2% the prior month

The annual benchmark revision to employment totals of the past 21 months noted that the U.S. economy added 1.82 million net new jobs in 2011, versus the initial estimate of 1.64 million jobs

Still…
While the January data was clearly better than we have seen for some time, a reality check is necessary.  This nation still has 5.6 million fewer workers than it did four years ago.  In addition, we started 2012 with fewer people employed than in January 2001…zero job growth over the past 11 years (The New York Times).
 
US unempThe unemployment rate falls at times because of solid job gains, as in January.  Other times it can decline as hundreds of thousands of discouraged people leave the labor market and are no longer counted as unemployed.

One measure of employment relative to the population remains worrisome, and distorts the unemployment rate.  The closely-watched labor force participation rate, those of working age in the economy who are holding a job, declined to 63.7% in January, the lowest since May 1983, a period of 29 years!

One could make the case that if another three million people left the labor force, the reported unemployment rate could drop to the mid-6% range.  But is that a good thing?

…hardly

In Summary
Can one argue that the bigger government policies of the Administration are finally working, as evidenced by the drop in the unemployment rate in recent months?…not exactly

I would suggest that the issues of pent-up demand for new automobiles, some new home construction activity, and limits to productivity gains in many sectors played a role in the recent job improvement.  The economy is growing at a modest pace, which traditionally means greater demand for workers.  One measure of advertised available jobs moved to a near three-year high in December (www.time.com).

I would also argue that while the Administration and the Congress have yet to approach budget deficit containment in any meaningful way, the option of even larger increases in government spending as favored by many in Washington, is off the table.  That is a good first step.

Finally, two other items come into play.  We have heard for two solid years now that Europe was about to implode financially.  It is still there, if still shaky.  The other issue is that numerous dire forecasts of imminent U.S. recession last summer as the economy was weak (never our view) also fell by the wayside.


Finance Expert Right Boarder