December Unemployment: Still a mixed Story

Morris Segall      employment report, improvement in unemployment trends, unemployment

Friday’s unemployment report for the month of December continued to show the mixed data we have been seeing since late last summer. While the unemployment rate for the month dropped steeply to 9.4% from 9.8% in November ( due primarily to a contraction in the labor force), the job creation in the month was a disappointing 103,000 jobs. Estimates of new job creation for December had ranged from 150,000 to 300,000. Consistent with our comments in our December 6, 2010 website article on November unemployment, we believe erroneous seasonal adjustment factors and incomplete business survey results are again understating new job creation in the initial monthly report. As we stated in that article, we believed the very low job creation data reported initially for the month of November, 2010 would be revised upward. Indeed, in Friday’s December monthly report, November job creation was substantially revised upward from 39,000 to 71,000 and October’s job creation data was also substantially revised upward from 151,000 to 210,000. In fact since July, revised monthly job data has shown a cumulative increase of 280,000 additional jobs being created versus initial estimates. We had stated in our December 6 website article that we noted the trend of upward revisions to the initial job creation data and the revisions in the December report confirms this trend. We expect a similar upward revision to the December data when the January monthly data is reported and when the semiannual revisions to 2010 data are made in February. We base this on the large reduction (over 500,000) in December in the number of people who have lost their jobs due the completion of  temporary jobs. This is the largest positive change in this category in a year. In addition, we also note a major positive shift in the number of unemployed by the duration of unemployment. The December report showed a reduction of over 500,000 people who have been unemployed from less than 5 weeks to 26 weeks. This also is the most dramatic improvement in this series since the end of the recession.

These positive trends do not change the fact that while employment is improving (we also believe there is a marked improvement in initial unemployment claims below the 450,000 level which had been a sticking point for so long), it is still well below levels necessary for accelerated economic growth. The fact remains that over 15 million Americans are unemployed and under-employed and over 6 million of these have been unemployed for over 27 weeks. The latter continues to grow and represents an increasing problem of long term unemployed. Labor remains a surplus commodity and wage growth in 2010 was less than 2%. The new fiscal stimulus of extended and new tax cuts enacted by the “lame duck” Congress aids the environment for increased job creation and offers the best hope since the end of the recession of improving employment. It remains to be seen if the promise will be fulfilled but the data is moving in the right direction and our optimisim for improvement has increased.

Morris R. Segall, CFA, CIC