Economic Update:  Employment - The Good, Bad and the Ugly

02.05.2010

Mixed signals would be the best way to characterize the national employment report out this morning.  The headline unemployment rate declined from 10% to 9.7%, but the nation’s employers reduced non-farm payrolls by 20,000.   Locally, the most recent metropolitan employment report also contained mixed signals, but I would lean to a more positive view for the local labor market situation.  

National Employment Report

The media and political pundits will likely focus on the headline unemployment rate.   Overall, I would characterize the household survey as positive.  The unemployment rate declined to 9.7% in January, and this decline was the result of an expanding labor force, higher number of employed and lower number of unemployed.     From an unemployment rate perspective, this is the most desirable combination.

Other components of the household survey were also favorable.  The U-6 unemployment rate, which considers discouraged and marginally attached workers declined from 17.3% to 16.5%.  This is still an overwhelming number, but should be viewed as a small bright spot.  Additionally, the median duration of the unemployed declined from 20.5 to 19.9 weeks.   Unfortunately, the mean duration of the unemployed increased 30.2 weeks, suggesting significant variation in the number of weeks some citizens remain unemployed.

The household survey gets pretty ugly when you observe unemployment rates in specific sectors.    This certainly demonstrates the upheaval that workers in some industries continue to face, and the resilience of other sectors.

Source:  Bureau of Labor Statistics

The variation of unemployment rates by industry can also be linked to educational attainment levels.   Jobs within the above industries require different education attainment levels, and this is evident with significant variation in unemployment rates by education attainment.

Source:   Bureau of Labor Statistics

The establishment survey paints a slightly negative picture however.   The nation’s employers shed another 20,000 jobs in January.    The consensus forecast was mostly in positive territory however.   

Construction continues to face significant challenges, shedding an additional 75,000 jobs in January.  Manufacturing was on the plus side, gaining an additional 11,000 jobs.  We pointed to this recovery in manufacturing earlier in 2009, and numerous national indicators now point in that direction.     As we have indicated previously, the question mark on manufacturing is sustained demand following the inventory restocking phase. 

Retail trade added 42,000, and professional and business services added 44,000 jobs.   Most of the jobs added in professional and business services were due to temporary labor services, another early indicator of recovery.   The most resilient sector in this recession has been health care, and it added an additional 16,000 jobs.

Today’s report also included revisions over 2009.  Revisions added an additional 617,000 in lost jobs through 2009.   In the coming days and weeks ahead, this number is going to add to the political debate on the effectiveness of the stimulus program. 

A number that you may not hear much is what happened during the last quarter of 2009.   If you recall, advance estimates of GDP came in at a plus 5.7%, a very favorable number.   In that same quarter, revised employment numbers indicate that non-farm payrolls declined by 310,000.   So this explains why we are seeing significant increases in productivity.  Pundits will focus on today’s numbers, but a view of the last quarter of the year indicates that healthy growth in GDP will not automatically coincide with job creation.   We are observing a structural phenomenon, and not necessarily cyclical.

Overall, I view the establishment data as continued evidence of the muted recovery we have discussed over the past year.   Yesterday, new claims for unemployment increased unexpectedly, and the equity markets tanked.    As it becomes increasingly evident that the nation will experience a U shape recovery, expect more volatility in the equity markets and some downside risk to stock prices. 

Source:  Barrons.com

Source:  Barrons.com

Louisville Employment Update

Despite an uptick in the region’s unemployment rate, I view the latest metropolitan employment report as slightly positive for Louisville metro.    The region’s unemployment rate increased from 9.8% to 10.2% in December, and this was the discouraging component of the report.    However, Louisville Metro saw continued deceleration in employment losses.  Over the year job losses declined to 12,600 and this is less than half of the 27,000 over the year losses in May, the trough in local job losses.

Over the year jobs losses in manufacturing have slowed to 2,800, quite favorable when compared to the 10,000 number we were seeing earlier in the year.   Across the board, most sectors saw continued deceleration in losses.  A few actually are now seeing flat changes from last year (professional and business services), and a few slightly positive (financial activities).     Health care continues to remain positive with respect to employment gains.

Concluding Thoughts

We will continue to see a slow recovery.   Jobs will remain scarce however, and we can continue to expect elevated unemployment rates.   Locally, I don’t see year over year job gains until later in the year.  Nationally, we still have ways to go before we begin creating monthly jobs of 150,000 plus.   The job market situation will continue to provide pressures on commercial and residential real estate, and will serve as significant headwinds to the overall recovery.    Yesterday, Bloomberg News released the results of an analysis on the retail sector, and suggested that more national retail store closings were likely.     (http://www.bloomberg.com/insight/closeout-sale.html)

While I continue to remain optimistic of a recovery, it will be gradual.   For many consumers, it will not be close to anything that feels like a recovery. 

Suggestions

If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.

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This information is provided by

Uric Dufrene. 

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in theSchool of Business at Indiana University Southeast.  He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels.   He previously served as dean of the School of Business.  Geaux Saints!