The total number of people employed rose by 80,000 in September of 2011. That is slightly worse than consensus expectations for a gain of 85,000. This report was slightly weaker than the ADP report on Wednesday. That report showed 110,000 private sector jobs created, and the expectations were for the BLS to show 117,000 new private sector jobs. The “actual” BLS number of private sector jobs was 104,000. Government payrolls declined by 24,000. The Federal Government employment fell by 2,000 jobs. The State level dropped 20,000 but the Local levels laid off 2,000. The pace of government lay offs fell from last month when a total of 33,000 government jobs were lost (revised from a loss of 34,000). The unemployment rate, which is derived from a separate survey, fell to 9.0%. The consensus was looking for it to be unchanged.
The Household survey was noticeably more upbeat than the establishment survey. pointing to a gain of 277,000 jobs. This is the third month in the row of sharp job gains according to the household survey. It has shown a total of 1.006 million jobs gained over the last three months. The Civilian Participation rate was unchanged at 64.2% for the month, but is down from 64.5% a year ago. This means that the drop in the unemployment rate for the month is real, not a statistical illusion. Unfortunately the same can not be said about the drop in the unemployment rate from a year ago, when it was 9.7%. More than half of that drop is a mere statistical artifact coming from a small percentage of the population actually being in the workforce. However the participation rate is up from the 27 year low it set in July of 64.0%. The percentage of people over the age of 16 who actually have jobs rose slightly to 58.4% from 58.3% (employment to population ratio, or the employment rate). That is the third month in a row it has increased. However, it too was coming off of a 27 year low in July. The employment rate was higher than the year ago level of 58.3%. This is the first year over year increase in the employment rate so far in this cycle
While this month’s employment gains from the establishment survey were slightly below expectations, that is more than made up for by very large upward revisions to the August and September numbers. In September, we “actually” gained 158,000 jobs, not the 103,000 reported last month. In August, we gained 104,000, not the 57,000 jobs we thought last month, well above the unchanged reading that was first reported. The upwards revisions were a very positive sign. The upward revisions came mostly from the private sector. The private sector revisions were for both months. In August, a total of 72,000, not 42,000 jobs estimated last month, were gained. In the first report, just 17,000 private sector jobs were estimated to have been gained in August. In September, 191,000 private sector jobs were added, not the 137,000 reported last month. The government lost 33,000 jobs, not 34,000 in September. In August, it added 32,000 jobs, not the 15,000 reported last month, or the original estimate of 17,000 government jobs lost. Thus, if one adds the revisions to the job gains for October, we have 182,000 more people working today than we thought we did yesterday. On the private sector side, the gain is 188,000.
The unemployment rate is derived from a separate (household) survey from the total number of jobs (establishment) survey. The household survey was much more upbeat than the establishment survey, as it has been for most of the year so far, with a gain of 277,000. In showed a gain of 398,000 jobs in September. In August, it showed a gain of 331,000 jobs. The household survey numbers do not get revised. However, generally the numbers from the household survey are considered less reliable than are the numbers from the establishment survey. That does not mean they should be disregarded entirely, and the divergences between the two series are often the biggest near turning points in the economy. The household survey does a much better job of picking up people who are self employed, and of very small start up businesses than does the establishment survey.
The unemployment rate fell to 9.0%, after three months in a row of being stuck at 9.1%. A year ago the unemployment rate was 9.7%. The civilian participation rate, or the percentage of people in the labor force, both employed and unemployed was unchanged at 64.2%. It hit its lowest level since May1983 in July at 63.9%. We were also coming out of a nasty recession in May 1983, and women were still far less involved in the workforce than they are today. The participation is down from 64.5% a year ago. The employment to population ratio, or the employment rate, rose for the third month in a row, rising to 58.4% from 58.3% in September. The July level of 59.0% number was the lowest since July 1983. It was at 58.3% a year ago. A rise in the participation rate makes it harder for the unemployment rate to fall, but is still good news. However, it is also true that the drop in the unemployment rate from 9.7% a year ago to the current 9.0% is in large part an illusion caused by the fall in the participation rate from 64.5% to the current 64.2%. A fall in the unemployment rate from a falling participation rate is not really such great news.
For all employees, the length of the average work week was unchanged at 34.3 hours. A year ago it was also at 34.3 hours. For production and non-supervisory employees, the length of the average workweek ticked up to 33.7 hours from 33.6 hours in September. It is up slightly from 33.5 hours a year ago. While a rise of an average of 6 minutes per week might not sound like a big deal, multiply it by the 131.516 million workers in the economy (establishment survey), and yes it is a big deal (to the extent it was really a six minute increase, and not smaller due to rounding). The very flat trend in average hours over the last year or so is extremely strong evidence that the overall anemic job growth is not due to excessive regulatory fears by businesses from things like the Health Care reform act. If the reluctance to higher were due to fears of higher costs that will be imposed starting in 2014 due to the act for hiring an marginal employee, but that there were still profitable business opportunities available, then the obvious thing for a business to do would be to have its existing workforce work longer hours. With the average work week still very low by any historic standard (although up from a very low 33.0 hours for production workers at the bottom of the recession) it is clear that the problem is that there are not enough customers, not that businesses are afraid of Obamacare.
Average hourly earnings for all employees rose to $23.19 from $23.14 and are up 1.84% from $22.77 a year ago. Average hourly earnings for production employees rose $0.03 to $19.53 for the month, and is up 1.56% from $19.23 a year ago. The year over year changes are well below the rate of headline inflation over the last year, so in real terms, wages are moving backwards. Income growth in the middle and lower half of the income distribution has been sorely lacking, not just recently, but for over a decade. Well, actually, it has been pretty bad for the bottom 90% of people, but particularly anemic for the lower half of the income distribution. Higher incomes for those who are working means higher sales and more quickly repaired household balance sheets. Slow growth or actual declines mean lower sales and less progress on balance sheet repair. The anemic growth in average hourly earnings is not a good thing for the economy, although it is good news for corporate profits, and hence the stock market, at least in the short term. It also means that it will be tough for a generalized increase in overall prices (a.k.a. inflation) to occur, as opposed to increases of relative prices of highly visible prices such as food and gasoline.
The other significant positive aspect of this report is significant progress on the duration of unemployment problem. Half of all the unemployed have now been out of work for 20.8 week, an awful level, but much better than the 22.2 week figure of last month, and below the 21.3 week level of a year ago. For perspective though, prior to the great recession the highest the median duration of unemployment had ever reached was 12.3 weeks near the bottom of the Reagan Recession of 1982-83. Since the definition has changed, the comparisons based on the average duration of unemployment over the long term are less meaningful, but it dropped to 39.4 weeks from 40.5 weeks in September. A year ago, under a definition that maximized the length of unemployment at two years rather than the five years now “allowed” the average duration of unemployment was 33.9 weeks.
While the unemployment rate is better a year ago, but part of that is a mirage due to falling participation rates. Still, significant progress has been made over the last year, with a net gain of 1.824 million private sector jobs gained. Unfortunately when one factors in the continual bleeding of public service jobs, the total employment gains over the last year fall to 1.522 million total jobs gained. If we were in normal times, rather than trying to dig out of a deep hole, that would be an impressive performance. Unfortunately we are not in normal times.
- Posted by Dirk van Dijk, Chief Equity Strategist at Zacks Investment Research of Chicago. Follow Dirk on Twitter @DirkHvanDijk