Pick "yer" Poison

Written by Jeff Thredgold, President, Thredgold Economic Associates

December 6, 2011

If ever there was a monthly U.S. employment report that yielded more than a little confusion, the November release would be the ticket.  There was literally something for everyone with an axe to grind—especially Democrats and Republicans…

The Democratic View
The optimistic pro-Democratic Party, pro-President Obama contingent gleefully noted the sharp drop in the nation’s unemployment rate from 9.0% in October to 8.6% in November. This is the lowest level since March 2009. 

This group also noted the fact that the number of unemployed people (those seeking work in the past four weeks) dropped from 15,041,000 in November 2010 to the current level of 13,303,000 in November 2011.  They noted the total dropped by 594,000 people last month alone (see below for what was excluded in their view). 

The “Dems” also noted the sharp decline in the “underemployment rate”…which includes the formally unemployed, those working part-time who would prefer to work full-time, and those discouraged workers who are not seeking a job but would accept one if offered…from 16.2% in October to 15.6% in November.

This group also noted that in addition to the estimated 120,000 net new jobs in November (very close to the consensus forecast of 125,000 jobs), the two prior months were revised higher by a total of 72,000 jobs.  This group, seeking to retain the Presidency and control of the Senate, regain the House of Representatives as well as thousands of elected positions around the nation, noted that the U.S. economy has added at least 100,000 net new jobs for five months in a row.

Almost as important as the sharp drop in the nation’s unemployment rate was the employment story being told by the “household” survey, wherein the unemployment rate is derived.  Democratic supporters noted that this survey of 60,000 households monthly has seen the addition of 1,280,000 net new jobs during the past four months alone, versus only 534,000 net new jobs in the larger “establishment” survey (140,000 businesses representing roughly 440,000 worksites), the source of the “official” 120,000 employment increase (www.bloomberg.com). 

The Democratic view argued that the smaller survey is more sensitive to what is happening with small business startups and expansions and agricultural jobs than the larger survey.  This factor, combined with the surge in “temporary” employment positions in November, suggests that the much larger establishment survey will soon indicate much more acceptable levels of American job creation, thereby contributing to widespread Democratic success in the November 2012 elections.

The Republican View
The pro-Republican, pro-anyone-but-Barrack Obama for President in the elections now just 11 months away, not surprisingly saw things quite differently.  This contingent noted that the addition of 120,000 net new jobs in November in an economic expansion now celebrating a two-and-a-half-year birthday is abysmal.  This group, seeking to retain the House of Representatives and regain the Senate and the White House, also noted that more than one-half of the net jobs reported were in retail trade and with “temp” agencies, not exactly the highest of income-producing jobs.

The “Repubs” noted this is particularly true given the massive and unprecedented amount of fiscal stimulus in the economy (as characterized by budget deficits averaging more than $1,300,000,000,000 annually during the past three years).  The Republicans also noted that the unprecedented monetary stimulus being served up by the Federal Reserve should also be contributing to much stronger U.S. economic growth and much stronger job creation, perhaps 250,000-400,000 net new jobs monthly. 

This view suggests that it is the fear of more and more government spending…the fear of more and more government intrusion into our lives (think Obamacare)…the fear of higher tax rates on people who invest and hire others…the fear of ongoing trillion dollar annual budget deficits for as far as the eye can see that has shaken the confidence of employers, leading to soft levels of new job creation.

The Republican group noted that the primary reason the nation’s unemployment rate declined sharply was that an estimated 315,000 discouraged workers left the labor force, stopped looking for work, and were therefore no longer counted as unemployed.  They noted that if the estimated labor force had remained unchanged, the unemployment rate would have been 8.8%.  They pointed out that it is one thing for the unemployment rate to move lower based on strong job gains…it is something quite different when much of the decline is tied to workers leaving the labor force. 

Republican boosters noted the overly optimistic portrayal of the sharp drop in the unemployment rate as conveyed by the liberal media.  They suggest that the positive spin of the November report could lead hundreds of thousands of formerly discouraged workers back into the labor market.  The net result could see the unemployment rate soon move back to between 8.7% and 9.0%.

This group noted that average hourly earnings for all employees on private nonfarm payrolls actually declined by two cents (down 0.1%) in November, with a 12-month rise of 1.8%.  This is hardly a positive development when consumer inflation this calendar year will be near 3.5%. 

The GOP noted that the smaller “household” survey can be extremely volatile and should not be counted on as evidence of much stronger job creation to soon be picked up in the establishment survey.  This group noted that the American economy has regained less than one-third of the eight million plus jobs lost during 2008 and 2009 alone despite massive government stimulus.

The Nicest House in a Bad Neighborhood
Recent U.S. employment data, combined with a jump in consumer confidence, gains in manufacturing, and solid auto sales suggest that U.S. economic growth has improved versus a lousy 2011 first half.  Ironically, such improvement is taking place as Europe faces likely recession, China and India are slowing, and other emerging market nations are struggling…

…stay tuned