The November Employment Report: Not So Fast

Morris Segall      absence of high paying job creation, consumer spending, employment report, job creation, long term unemployment, low paying job creation, seasonal service sector jobs

The November employment report showed an increase of 120,000 new jobs, 140,000 in the private sector and a loss of 20,000 in the government sector. The latter continues the negative trend begun in the second half of 2008. Of import was the sharp drop in the unemployment rate from 9.0% (which has been the level over the past 12 months) to 8.6%, the lowest level since March, 2009. Additionally, prior months job gains in September and October were revised upward by a total of 72,000, moving the average monthly gain in job creation over the past three months up to 143,000 versus an average of 76,000 over the prior four months.

As impressive as the headline numbers appear, one needs to analyze the details behind the numbers. Upon further examination we find the following:

1. The large drop in the unemployment rate reflects a large drop in the labor force of over 300,000
persons in the month of November. This is indicative of a continuing flow of discouraged workers
leaving the workforce which now numbers over 2.5 million and causing the labor force participation
rate to fall to a multi-year low of 64%.

2. The number of unemployed over a 5-26 week period actually increased by over 30,000 persons in
November from September levels.

3. Virtually all of the job gains since September have come from the service sector sector, notably retail
trade, professional and business services, most of which were temp jobs, healthcare services and
leisure and hospitality jobs. Most of the retail and leisure and hospitality jobs are seasonal and are
considered temporary. All of these service sector jobs are generally lower paying jobs relative to
manufacturing, construction and goods producing jobs which are not showing increases over the
past three months.

4. Average hourly earnings are little changed over the September-November period despite the large
increase in monthly job creation. This further validates our thesis that the bulk of the jobs being
added are low paying.

5. The average duration of unemployment in weeks amounted to nearly 41% in November, near the post
recession highs of 40%-45%, despite the increase in job creation since September and the recent
decline in first time unemployment claims during this same period and a decline in the number of
unemployed of 5 weeks or less.

So, while the increase in job creation since September is welcome and helpful to income creation and consumer spending in the near term, we must look at these numbers with circumspect as they may not last and appear to do little to improve the longer term unemployment distress in higher paying jobs and among the long term unemployed.

Morris R. Segall