The private sector actually added more than the total number of jobs again in September. State and local governments laid off 22,000 workers, and have trimmed their payrolls by 288,000 over the last year. Local government employment was down by 2,000 on the month, and is down by 200,000 from a year ago. The number of state employees was down 20,000 on the month and is down by 88,000 over the last year. The Federal Government dropped 2,000 employees on the month, and has dropped 35,000 employees over the last year. Postal workers are also counted as Federal Employees and those jobs have also been falling. Excluding the postal service, civilian Federal jobs are down by 5,300 over the last year.
In looking at the effectiveness of the stimulus program from the Federal government one should keep in mind the massive anti stimulus effect of budget cuts and tax increases (mostly budget cuts) at the state and local levels of government. For the overall economy, it does not matter from which level of government stimulus or austerity comes from. The level of government where spending occurs matters, for a bunch of other reasons, but not for macro economic impact. About a third of the ARRA was actually sent to State and Local governments to prevent (or delay as it has turned out) austerity at the lower levels of government from hurting the economy. Clearly the spending cuts are job killers. The effect goes well beyond the direct 288,000 jobs lost at the state and local government levels over the last year. Those former government workers are now out of jobs and thus spending less, depressing private sector employment as well. With the spending cuts agreed to as part of the debt ceiling deal, look for even more job cuts at all three levels of government.
Within local government, education jobs were down by 1,200 for the month and are down by 118,400 over the last year, or 1.48%. Given the huge disparity in the unemployment rate between the uneducated and the highly educated one has to seriously question the wisdom of laying off so many K-12 teachers. Seriously, people worry about the burden that we are putting on our Children due to the increase in the Federal Debt. Just how do we expect them to bear that burden if most of them are illiterate and innumerate? How are we going to compete in the future against countries that actually think it is a good thing to educate their future workforce?
There has been a theme running in the political discourse that we must cut government spending so we can increase employment. This is simply absurd. In what world do you increase employment by cutting jobs? George Orwell Lives! Then again, according to the Orwellian world of 1984, “Ignorance is Strength” so the cutting back on the number of teachers is the way to make the country stronger. Non-education jobs at the local level, mostly cops, firefighters and social workers dropped by 3,500 on the month and are down by 81,400, or 1.29% over the last year. The year over year declines understate the impact, as the cuts have been going on for well over a year now. The peak in local educational jobs was back in April of 2009 at 8.106 million. Since then we have lost 244,400 or 3.02% of those jobs, while the number of school aged children has increased slightly. Since its peak in December 2008, local non-educational jobs are down by 266,500 or 4.09%.
The private sector added 104,000 jobs, down from an increase of 191,000 jobs in September (revised up from just 137,000). That would be an OK rate if we were near full employment, but when we are trying to climb out of such a deep hole, it is not going to do the trick. In August, the private sector added 72,000 jobs (revised up from 42,000, and from an initial read of just 17,000). The private sector job growth over the last three months is anemic, averaging 122,300. If the economy were near the top of an economic cycle, that would be soft, but not a disaster, but it is awful coming out of a deep recession. The October number was below the consensus expectations of 117,000 private jobs gained. However, if one counts the revisions, then we have 188,000 more private sector jobs today than we thought yesterday. So in that sense it was better than expected.
This is the 23nd straight month that the private sector has added jobs, with a total increase of 1.824 million over the last year. Total job growth, constrained by the loss of government jobs has been 1.501 million over the last year. In a normal year, that would be a great showing, but we lost 8.75 million jobs in the Great Recession, so we still have our work cut out for us. The total number of jobs is still 6.480 million below the peak of the last cycle (1/08), but is up 2.270 million above the cycle low (2/10). Private employment is 6.073 million below the peak, but 2.765 million off the low. The number of private sector jobs is now at its highest point since February 2009, before the ARRA was passed.
Within the private sector, the goods producing sector lost 10,000 jobs. In September it gained 29,000. In August the Goods producing sector lost 13,000 jobs. Over the last year employment in the goods producing sector is up 309,000. The Construction industry lost 20,000 jobs, after gaining a surprising 27,000 last month. The construction industry has been particularly hard hit in this downturn, accounting for about 30% of all the jobs lost, even though at the start of the recession it accounted for less than 6% of the total jobs in the country. As these jobs generally do not require a lot of formal education, the demolition of construction helps explain why the unemployment situation is so dire for those who never went to college. As a male dominated industry, it also helps explain why this recession has been so much tougher on men than it has been on women. Employment in Construction peaked before the rest of the economy, in April 2006. Since then we have lost 2.201 million construction jobs. Most of the decline though happened after the overall private sector jobs peaked in January 2008, and since then Construction jobs are down by 1.947 million, or 26.1%. Since the peak, overall private sector employment is down by 6.073 million. In other words, this one industry is directly responsible for 32.1% of all job losses since the start of 2008, even though it was responsible for just 6.46% of all private sector jobs in January 2008.
Manufacturing added 5,000 jobs, more than reversing a decline of 3,000 in September and a 1,000 drop in August. Manufacturing employment has been in a secular decline for about 30 years, but it has actually fared pretty well over the last year or so, up by 220,000. The peak in manufacturing jobs was way back in July of 1979 at 19.531 million. By the time the Great Recession started in January 2008, the number of manufacturing jobs was already down to 13.728 million. The low in manufacturing jobs was in December 2009 at 11.462 million, and since then we have gained back 297,000 of those jobs. Still, relative to the start of the Great Recession manufacturing jobs are down by 1.969 million, or 14.3% representing 32.4% of all private sector job losses from the start of the recession.
The service sector gained 114,000 jobs in the month, down from an increase of 162,000 in August (revised up from a gain of 119,000). Relative to a year ago, private service sector jobs are up by 1.515 million. Relative to the start of the Great Recession they are off by 2.221 million. From their 12/09 low, private service jobs are up by 2.373 million, so are more than halfway back. One of the biggest contributors to service sector jobs, as always, was the health care (and social assistance) industry which added 16,300 jobs. The health care industry has not had a single down month in terms of employment in the entire downturn. The health care industry has a far higher proportion of women working in it than does the economy as a whole, and this is a big part of the reason that the unemployment rate for women is so much lower than that for men.
Of particular interest is the increase in temporary workers. Those jobs rose by 15,000, down from a gain of 21,100 in September. It is not that being a temp is the greatest or highest paying job in the world that makes them of particular interest. It is because they are a good leading indicator of future employment trends. When during a downturn an employer first sees a pick up in demand, he will not know if it is just a temporary blip, or the start of a real recovery. Thus, he is going to be hesitant to take the time and expense of bringing on new workers who will just have to be laid off it if does turn out to be just a blip. The first thing she is going to do is work the existing workforce harder. This is particularly is hours have been previously cut back due to slow demand. The rise in the average work week is a good sign in that regard (unchanged for all employees at 34.3 hours per week, but up to 33.7 hours from 33.6 for production and non supervisory employees). Working more hours means more income, and thus more spending by hourly employees.
The second thing an employer will do when faced with an increase in demand is going to be to call a temp agency, such as Kelly Services (KELYA) or Manpower (MAN). Only when the employer is reasonably sure that the upturn is for real and will last will he figure that it is worth bringing on a full time permanent employee. However, temp jobs have been trending higher since August 2009, and one would think that we would be starting to see those translating into permanent jobs at a faster rate at this point. That disconnect could be pointing to some sort of structural shift in the employment market, but it is too early to say. Temp’s are a very volatile part of the employment force, with the number of them plunging in bad times, but then rebounding strongly when the economy gets better. Thus while the year over year percentage gain in Temp jobs has been much higher than for the private sector overall, the total number is still well below where we were before the start of the recession.
The number of people working part time for economic reasons, in other words because that is all they could find, or because their previously full time job has had its hours cut back, fell to 8.896 million, down 374,000 for the month, but that just partially reverses a big jump of 444,000 in September. Relative to a year ago they are down 204,000. The “underemployment rate” fell to 16.2% from 16.5% this month, but that is the same level as in August. (U-6 for you wonks out there). It is still down from 17.0% a year ago level. That is still a very high rate. After all, if you are used to working 40 hours a week, but have been cut back to just 20 hours a week, you might not be unemployed, but economically you are still struggling. The number of people who were working part time because that is what they want to do rose by 100,000 for the month, and is up 52,000 from a year ago.
Overall Grade: B
Overall, this was pretty good report. It came in a bit weaker than expected on the payroll front, but we had big upward revisions to the numbers for September and August. The household survey was even more upbeat, pointing to a gain of 277,000 after a 398,000 job gain in September, on top of a gain of 331,000 in August. Those are impressive numbers in just about any context. Unfortunately, the household survey is generally considered less reliable than the establishment survey. The unemployment rate fell to 9.0% even though the participation rate was unchanged. The percentage of people holding a job increased for the third month in a row. We saw a big drop in the number of people who want a full time job, but can only find part time work. We also saw a major improvement in the duration of unemployment numbers. I would have liked to see more movement in the headline total job creation and private sector job creation numbers for the month.
Year over year, the drop in the unemployment rate, from 9.7% to 9.0% looks like progress, but it is partly an illusion. It is mostly due to a fall in the participation rate, but that has bounced for three straight months now. Anyone who gets excited about the drop in the unemployment rate that comes due to a falling participation rate is deceiving themselves. The rising participation rate this month is a good sign for the economy, but the absolute level is still just awful. After all, the July level was a 27 year low, so it is not something to get very enthusiastic about. Similarly, the percentage of people actually working ticked up for the second month in a row, but off of the worst showing since 1983.
The household survey was much more upbeat, and pointed to a gain of 277,000 jobs for the month, and over a million over the last three months. The public sector has been a significant drag on employment growth, and plays a big role in why overall job growth has been so weak. Normally government employment rises fairly robustly early in recoveries. So ti not just the government jobs lost, but also the jobs that are normally created that are missing. All things considered, it is better to see the job creation in the private sector, but those public sector jobs are held by real people. Wal-Mart (WMT) does not ask if you are in the public or private sector at the checkout counter.
The damage done by this downturn was far deeper and more extensive than in those downturns. While clearly we have started the upturn, with or without census hiring, it is going to take a very long, long time before we surpass the total number of jobs the economy (both private and government) had back in January of 2008 (137.996 million). We are still 6.480 million lower than that level. At the average pace of the last three months, it would take 57 more months, or almost five years to get back there, and the population will continue to grow over that time frame.
- Posted by Dirk van Dijk, Chief Equity Strategist at Zacks Investment Research of Chicago. Follow Dirk on Twitter @DirkHvanDijk