Greg Ip

Articles by The Economist’s U.S. Economics Editor

America’s jobs numbers: A steady pulse

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Dec 7th 2012, 16:57 by G.I. | WASHINGTON, DC

AMERICA’S jobs numbers are less freighted with political significance now that the election is over, but they’re still an important measure of the economy’s pulse. The numbers released on November 7th show that the pulse is steady: employment growth remains moderate and unemployment continues to fall faster than the economy’s strength can explain.

Non-farm payrolls rose last month by 146,000. Wall Street had expected only half that number because of the impact of Hurricane Sandy, which struck at the end of October, just before the Bureau of Labor Statistics surveyed employers and households. But the BLS said, “Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates.” Nevertheless, payrolls in both September and October were revised down, by a combined 49,000.

The unemployment rate dropped from 7.9% to 7.7%, its lowest level since December 2008. But the cause was not job growth. According to the survey of households, which often yields different results from the survey of employers, the number of people employed edged down 122,000 last month. But the labour force fell even more, by 350,000. The participation rate, which is the share of the working-age population that is either working or looking for work, sank to 63.6%, just above the recent cyclical low of 63.5% in August.

While the report is less upbeat than the headline indicates, it does not show an economy losing steam. In fact, there’s strong evidence the hurricane did take a toll, even if didn’t meet the BLS’s definition of “substantive”. For example, the number of workers not at work because of weather soared to 369,000 in November, Dave Greenlaw of Morgan Stanley noted, far above the 40,000 to 115,000 range for Novembers over the previous decade. Furthermore, jobless claims leapt in the weeks following the hurricane, and only last week returned to normal. This strongly suggests we’ll see some weather-related rebound in both measures of employment in December.

The more interesting insight is that business and consumers are tugging the economy in different directions. Business-facing employers, such as manufacturers of machinery, are cutting back in the face of uncertainty about the fiscal cliff—big increases in taxes and cuts in spending scheduled to take place at year-end if Barack Obama and Congress don’t agree on an alternative. But consumer-facing employers are not retrenching. Retail trade, for example, added 52,600 jobs, the third straight month of robust hiring. Leisure and hospitality rose 23,000, the second strong monthly gain. Consumer confidence did fall sharply in early November, the University of Michigan reported today, but that may have been related to the hurricane and Republican-leaning voters’ reaction to the election.

If the fiscal cliff is resolved, that should allow some underlying strength in the economy to show through early in the new year. But there continue to be problems. Don’t pay too much attention to the decline in either the labour force or the household measure of employment in November. Both measures are volatile and had risen sharply in the previous two months. But the ratios—the unemployment and participation rates—are quite stable, and the recent declines in both are much larger than can be explained by payroll employment. It seems likely that ongoing structural restraints are depressing the size of the labour force: early retirement, more of the unemployed giving up the job hunt, perhaps even shrinking immigration. As Jared Bernstein recently noted, this spells trouble not in the short term but in the long term, because it undermines America’s potential growth rate.

The original post is linked here.


Written by gregip

December 7, 2012 at 4:41 pm

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