September Unemployment Report: Is job growth really improving?

Morris Segall     

The financial news has been ablaze with the seeming improvement in job creation contained in the October employment report released on Friday. While the creation of 151,000 new jobs in that report was far in excess of analyst estimates, let’s look at the facts.

1. Of the 151,000 new jobs in the Business Establishment Survey, over 7,000 were in wholesale trade, approximately 28,000 were in retail trade and nearly 35,000 were in temporary help services. That totals 70,000 jobs or nearly half of the 151,000 job gain.  Both wholesalers and retailers have announced in October they were increasing their hiring of seasonal employees for the holiday selling season. It is reasonable to ask how many of the 70,000 hires in wholesale, retail and temp services will be permanent hires after New Year’s.

2. The average workweek in the October business survey was only 34.3 hours, unchanged from the level of August and consistent with the low level of hours worked during the entire recovery period since the summer of 2009. With the continued low level of hours worked, it is hard to make the case businesses are now stepping up permanent hiring.

3. In the Household survey, the number of workers who could only find part time work in October increased by 116,000 to almost 2. 6 million people. In October, 2009, the comparable number was just under 2.1 million and in August of 2010, the number was 2.3 million.

4. In the October Household survey, the number of people in the civilian labor force dropped by over 250,000 from September and a little over 200,000 from the number in August. This reflects people who are leaving the work force because they cannot find work and are disillusioned with the prospects of finding employment. As a result, the labor force participation rate in October fell for the second straight month to 64.5% from 64.7% in August and September and is below the 65% participation rate of October, 2009. As a corollary, the number of people not counted in the labor force in October grew to 84.6 million, an increase of over 460,000 from September, an increase of 637,000 from August, 2010 and an increase of nearly 2 million people from October, 2009.

5. The number of workers unemployed 27 weeks and longer reached a level of 6.2 million, up 83,000 from the level in September and 586,000 from the comparable level of October, 2009.

6. First time unemployment claims for the week ended October 30th showed a deterioration back over 450,000, a level the labor market has not been able to consistently breach on the downside all year.

So, while the headline numbers of job growth in October look impressive, we remain unconvinced they signal a turning point in employment. In regards to the upward adjustments to job creation in August and September, the multiple revisions we are seeing in prior months employment numbers are making the monthly employment report very unreliable. Our analysis of other employment measures continue to paint a weak employment situation.

A final note. Nothwithstanding our skepticism about employment, we sense an improvement in GDP growth in the current quarter from the weak levels of the second and third quarters led by an increase in consumer spending and manufacturing shipments. Consumer spending is being induced by the upcoming holidays and cannot be sustained thereafter without a dramatic improvement in job creation. The manufacturing sector will need sustained growth in end demand to sustain the recent improvement from the summer lull. Both are question marks after the first of next year.

Morris R. Segall, CFA, CIC