The news on the labor market, and thus the overall economic recovery, is even better than I thought. The job market is only slightly ahead of where I expected it to be on its road to recovery, and is significantly further along than nearly anyone expected. I remain extremely optimistic about the coming Obama Boom, far FAR more optimistic than nearly every economic forecaster and talking head.
Here are two articles about the November employment report, released yesterday.
http://money.cnn.com/2009/12/04/news/economy/jobs_november/index.htm
http://www.nytimes.com/2009/12/05/business/economy/05jobs.html?_r=1&hpw
In November, the economy lost 11,000 jobs. (I note that this number is seasonally adjusted. This means that, for example, the economy ALWAYS gains a lot of jobs in November as retailers gear up for the Christmas shopping season. The 11,000 number is derived after the seasonal effect of increased November hiring is stripped out). Given that there are 130 million jobs in the US, 11,000 is a tiny, number, statistically. Basically, there was no net job loss in November. We always speak of NET job gain or job loss, because many tens of thousands of jobs are gained and lost in every month; jobs are created in the deepest of recessions, and lost in the strongest of booms. That churning always takes place. What matters from the perspective of the entire economy is the net of those numbers. And in November, the net was about zero, and the closest it has been to zero since late 2007.
The media focused on the unemployment rate dropping by 2 tenths of a percent. While this was surprising indeed, in my opinion the important number is the number of net new jobs, not the unemployment rate, which is, in my view, a more flawed statistic, for a variety of reasons that I'll explain by e-mail if someone asks.
Since the labor force grows by 130,000 per month, or thereabouts (immigration, more people turning 18-23 than are retiring) the economy needs to gain about that many jobs each month just for the unemployment rate to stay even. So if the economy loses 11,000 jobs and the unemployment rate drops, you have a statistical anomaly. The statistics are flawed enough that this sort of anomaly is well within the normal range of statistical background noise.
Back to the actual employment report. As the New York Times article above put it, the jobs report is the strongest since the recession began in late 2007. Since 11,000 jobs were LOST, least bad since late 2007 is a better way of putting it.
There were, however, significant positive indicators in last month's employment report. First, the number of jobs lost in September and October were both revised down, by a total of 159,000. In and of itself this is good news. The fact that both revisions were in the same direction is even more significant.
Second, the average work week increased from a record low of 33 hours in October to 33.2. This is highly significant, because in many cases businesses can work their existing employees harder before hiring new people. That number, still extremely low, is at least on the rise. In addition, increased hours means, in many cases, increased income, which means increased consumer spending. One month's increase in the average hourly work week is not very significant, but if this becomes a trend, it becomes highly significant, both because employers will be forced to hire more employees, and because of the aforementioned increase in consumer spending.
Third, the number of temporary workers increased by 52,000, the most in five years. In many cases, businesses hire temporary workers when they first need additional labor, and later, as conditions for their business continue to improve, they add permanent workers. The number of temporary workers is the proverbial canary in the mine-- temporary workers are, almost by definition, the first to be fired in a downturn and the first to be hired in an upturn. The 52,000 number is itself somewhat significant, but the trend, if it continues, is hugely significant.
In summary, this was a significantly less bad report than any in the last 24 months, and it gave tantalizing hints of possibly GOOD employment reports to come, starting soon. It is encouraging for my predictions of a very strong economic recovery.
What does this report mean going forward?
The first rule of interpreting government statistics (after being skeptical in general) is that one month does not a trend make. That must be kept in mind. It wouldn't surprise me overmuch if December and January's reports were less positive/more negative. You need at least 2 months, and preferably more, before you can begin drawing conclusions.
However, the other news I have seen recently gives me no reason to believe that the underlying labor market has become significantly less bad, and will continue to improve in the next few months and beyond. I have had absolutely no reason to question my great optimism about the vigor of the coming Obama Boom.
First, Challenger has reported that the number of job cuts slowed in November to the lowest rate in two years.
http://money.cnn.com/2009/12/02/news/economy/job_cuts/index.htm
This is consistent both with the November employment report (released two days later) and with what I have expected to see and am now seeing. Businesses have cut so very many workers that they are about done cutting headcount, unless demand (the overall economy) takes a sharp turn for the worse. Businesses, in my opinion, have already cut enough workers given the current demand for the goods & services. As that demand picks up, the number of new jobs created (not net new jobs, just new jobs) should increase sharply from the current low levels. This, of course, leads to the creation of net new jobs in the event that the numbers increase above job cuts.
Second, new filings for unemployment claims have also fallen recently, though to still fairly high levels. This number (correlating strongly with the number of jobs destroyed due to falling demand) dovetails with the above-mentioned Challenger report. Simply put, businesses are firing a lot fewer people, since they have already laid off so many due to the decline in demand. As soon as businesses realize that they need significantly more workers, which I still predict will occur this Winter, probably in February, the number of net new jobs should turn (and stay) positive. This will not be a jobless recovery. To borrow a phrase, net new jobs, and lots of them, are right around the corner.
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