Employment Report In-Depth (pt. 2) - Analyst Blog

(Note: This article is a continuation from "Employment Report In-Depth [pt. 1].")

Long-Term Unemployment

Long-term unemployment is a very different experience than short-term unemployment. It is not just an unplanned vacation, it is an existential treat to your standard of living. When you lose your job you don't know how long it will take you to find a new one.

You get unemployment insurance benefits (usually, but not always) but in general, they cover just 60% of what you were earning when you were employed, up to a cap of around $400 per week (varies a bit by state). The nationwide average is about $300 per week. Thus for most, the pay cut is much more than 40%.

Most people have fixed -- or at least semi-fixed -- expenses that use up more than 60% of their income. They thus have to dig into their savings and/or run up their credit cards. It is also much harder to get a job if you have been out of work for a year than if you have been out of work for just a month or so.

Regular state unemployment benefits run out after 26 weeks, and after that people move over to extended benefits which are paid for by the Federal government, and which this time around have become a political football. By the point that people get to the six-month mark of joblessness, they have usually depleted most of their savings outside of their 401-k or IRA plans, and may well have started to dip into those as well (in the process paying a 10% penalty plus having the withdrawals taxed as ordinary income).

That is particularly true this time around, because going into this recession the savings rate was at a historic low. In past downturns, the unemployed who were also homeowners could generally tap into their home equity to tide them over. But with 23% of all homes with mortgages now underwater, and another 5% with less than 5% positive equity, that option is no longer available for millions.

Thus, without extended benefits these people would be left with no financial resources at all.  With the failure to extend benefits by Congress, two million people will be losing this last lifeline just in time for the holidays.

4 Different Unemployment Groups

The Census Bureau tracks four different groups by length of unemployment. The short-term unemployed are those that have been out of work for less than five weeks. Almost always this is the largest group of the unemployed. The next biggest group is usually those that have been out of work between five and 14 weeks.

Being out of work for a month is really not that big a deal, but as the joblessness stretches on it becomes a bigger and bigger problem. Not only do your finances start to run dry, but your contacts start to dry up and your skills start to wither. The longer you are out of work, the lower your likely salary once you return to work.

Normally the next two groups, those out of work for 15 to 26 weeks, and those out of work for more than 27 weeks are a very small portion of the total unemployed. That changed in a very big way during this downturn, and in November 6.313 million, or 41.9% of the 15.119 million total unemployed, have been looking for more than 26 weeks. That is an increase of 107,000 people from last month, but is still off the peak in May, when there were 6.763 million very long-term unemployed.

A year ago there were “only” 5.901 million people, or 38.7% of the total unemployed, that were out of work for more than 26 weeks. In a healthy economy, the number of very long-term unemployed should be down closer to 1 million, not above 6 million. On the other hand, the 2.657 million who are out of work for less than five weeks is actually lower in absolute terms than the average of the last 40 years (despite population growth over that time).

Also somewhat disturbingly, the next longest group, those unemployed between 15 and 26 weeks has been increasing rapidly since July, so the “pipeline” for long-term unemployment is very full.

Demographics of Joblessness

This recession has hit men harder than it has hit women. However, over the past year, things seem to be “evening out” between the genders. This month the news was bad for almost all demographic groups. In November, the unemployment rate for adult men (over 20) rose to 10.0% from 9.7% October. It is down from 10.4% a year ago. A bit of the year-to-year decline is an illusion though as the participation rate for men plunged from 74.4% a year ago to 73.8% in November (unchanged from October).

The employment rate for men ticked down to 66.4% from 66.7% in October, and was 66.7%  a year ago. Thus the employment situation for adult men is arguably worse now than it was a year ago.

For women, the unemployment rate rose to 8.4% in October, up from 8.1% in October and 8.0% a year ago. The participation rate was 60.2%, unchanged from October and the employment rate was also unchanged at 55.3%. A year ago they were at 60.4% and 53.7%, respectively.

In the overall big picture, men have fared far worse than women in this downturn. There are two possible reasons for that. The first is that the industries that have been particularly hard hit in this downturn tend to be far more male dominated than the industries that have skated though this recession more or less unscathed. The most glaring example of this would be the construction industry versus the health care industry (more on the industry breakdowns below).

The second explanation is that on average, women tend to still be paid far less than men do, and employers might be more prone to let their relatively high priced male employees go first before their cheaper female employees. The industry effect is probably the bigger one, but the two are not mutually exclusive and both might be playing a role. 

Teens, regardless of gender have had a very hard time of it in this recession. However, an improved teen unemployment rate is one of the few bright spots in this report. Just go to a McDonald's (MCD) and you will see this for yourself. Normally the blemishes you see on the cashier's face is acne, not wrinkles and age spots as is the case now.

In October, the teen unemployment rate fell to 24.6% from 27.1% in October and it is down from 26.8% a year ago. Some, but not all, of that improvement is an illusion from a falling participation rate, which dropped to 34.6% from 35.2% in October, and 35.8% a year ago. The percentage of teens that actually have a job was just 26.1%, up from 25.6% in October but down from 26.2% a year ago.

While for the most part the earnings from teen jobs tend to go towards clothes from Abercrombie & Fitch (ANF) and other teen clothing stores, for many it is a significant part of paying for college. Also, when teens work, they learn important job skills, such as the importance of actually showing up, and doing so on time. The extremely low levels of teens working is not a good sign for the future.

By Racial Demographic

Not surprisingly, Whites have a lower unemployment rate than do Blacks or Hispanics. But this month was sort of an equal opportunity un-employer, at least in terms of direction. The rate for Whites was ticked up to 8.9% from 8.8% in October, but down from 9.3% a year ago.

The participation rate though fell to 64.8% from 64.9% and the employment rate for whites fell to 59.0% from 59.2% in October and 59.4% a year ago. The employment rate for whites had held steady at 59.5% for four straight months prior rising a tick in both this month and last.

The unemployment rate for Blacks rose to 16.0% from 15.7% in October, and is now worse than the level as a year ago (15.6%). Here, though, the headline unemployment numbers are a bit exaggerated due to changes in the participation rate. For the month, the participation rate for Blacks rose to 62.5% from 62.2% in October, and a year ago. The employment rate for Blacks rose to 52.5% from 52.4% in October, equal to the 52.5% rate of last year. Still the unemployment rate is 80% higher than for whites, and the employment rate is 11% lower (52.5% vs. 59.0%).

For Hispanics, the unemployment rate in September rose to 13.2% from 12.6% in September and up from 12.7% last year. The monthly deterioration is not quite as bad as it appears though as the participation rate rose to 67.2% from 67.0% in October, but below the 67.8% last year. The employment rate fell to 58.3% from 58.6%. A year ago the Hispanic employment rate was 59.2%.

Stay in School

The unemployment rate for high school dropouts rose to 15.7% in November from 15.3% in October. It was as low as 13.8% in July, so has been rebounding badly in recent months. It is now above the 15.0% a year ago level. The deterioration in the job situation for those without even a high school education is even worse than it appears.

The participation rate among the dropouts fell to 46.6% from 47.0% in October but is up from the 46.3% level of a year ago. The percentage of high school dropouts actually employed fell to 39.3% from 39.8% October but unchanged from last year.

Just finishing high school or getting your GED substantially increases your odds of having a job. The unemployment rate for high school grads (with no college) fell to 10.0% from 10.1% in September and is down from the 10.4% rate a year ago. In all three months, the level was far below that for dropouts.

However, the participation rate fell to 61.1% from 61.4%. A year ago it was at 61.6%, so the improvement is an illusion. The employment rate for high school grads also fell on the month to 54.9% from 55.2% in October and a year ago.

Those who went to college but did not finish, or only got an Associates degree, had an unemployment rate of  8.7%, up from 8.5% in October, but down from 9.0% a year ago. The bad news for those with Associates degrees is actually somewhat worse since the participation rate fell to 69.9% from 70.2% in October and from 70.4% a year ago. The employment rate fell to 63.8% from 64.2% in October and below the 64.1% level of a year ago.

For those who stay in school to get their BA (or higher), the unemployment rate rose to 5.1% from 4.7% in October (and just 4.4% in September), and up from 4.9% a year ago. The monthly deterioration is actually not quite as bad as it looks because the participation rate rose to 76.6% from 76.1% in October, but it is well below the 77.4% level of a year ago.

The percentage of college grads with jobs rose to 72.7% from 73.6% in October but remains well below the 73.6% level of a year ago. For those eagle-eyes among you who note that the numbers from the educational subsets don't seem to conform to the overall numbers, it is because the educational subset numbers are only for those 25 years or older. The overall unemployment rate for all people regardless of education over 24 years old was 8.4% in November, up from 8.2% in October but down from 8.5% a year ago.

The unemployment rate for people 20-24, those who are just entering the full time workforce was 15.9%, up from 15.2% in October, and 14.8% in September, but unchanged from a year ago. If these people cannot get jobs, they tend to remain living with Mom and Dad. This slows the rate of household formation, and hence the demand for housing. That makes it difficult for the economy to absorb the huge housing inventory overhang.

Normally housing is the locomotive that pulls the economy out of recessions. That locomotive is still derailed, and it is the principal reason that this recovery has been so sluggish.

Where the Jobs Are (And Are Not)

The private sector actually added more than the total number of jobs this month. State and local governments laid off 13,000 workers, and have trimmed their payrolls by 280,000 over the last year. In looking at the effectiveness of the stimulus program from the Federal government, one should keep in mind the massive anti-stimulus effect of budget cuts and tax increases (mostly budget cuts) at the state and local levels of government.

The private sector added 39,000 jobs, way down from an addition of 160,000 jobs in September (revised up from a gain of 159,000), and from the 121,000 jobs it added in September (revised up from a gain of 107,000 jobs). A year ago, the private sector shed 75,000 jobs in November. This is the eleventh straight month that the private sector has added jobs, but the pace has not been high enough to keep pace with the growth in the population.

Within the private sector, the goods producing sector lost 15,000 jobs. The construction industry lost 5,000 jobs, after gaining 3,000 jobs in October. The construction industry has been particularly hard hit in this downturn, accounting for about 25% of all the jobs lost, even though at the start of the recession it accounted for less than 6% of the total jobs in the country.

As these jobs generally do not require a lot of formal education, the demolition of construction helps explain why the unemployment situation is so dire for those who never went to college. As a male-dominated industry, it also helps explain why this recession has been so much tougher on men than it has been on women.

Employment in construction peaked before the rest of the economy, in April 2006. Since then we have lost 2.109 million construction jobs. Most of the decline, though, happened after the overall private sector jobs peaked in December 2007, and since then Construction jobs are down by 1.876 million, or 25.0%.

Since the peak, overall private sector employment is down by 7.296 million. In other words, this one industry is directly responsible for 26% of all job losses since the end of 2007.

Manufacturing lost 13,000 jobs, on top of the 11,000 jobs lost last month, making it the fourth month in a row of manufacturing job losses after a nice string of increases. These numbers contradict what ADP (ADP) said on Wednesday, and the ISM manufacturing survey where the employment sub-index has been consistently been pointing to an expansion in factory jobs for many months now.

The service sector just 65,000 jobs in the month, down from an increase of 157,000 in October (revised from a gain of 154,000) and a gain of 122,000 in September (revised from 111,000. A year ago the Service sector added 108,000 jobs. One of the biggest contributors to service sector jobs, as always, was the health care industry which added 30,000 jobs.

The health care industry has not had a single down month in terms of employment in the entire downturn. The health care industry has a far higher proportion of women working in it than does the economy as a whole, and this is a big part of the reason that the unemployment rate for women is so much lower than that for men.

Temp Workers

Of particular interest is the increase in temporary workers. Those jobs increased by 39,500 in November on top of 34,700 in October. It is not that being a temp is the greatest or highest paying job in the world that makes them of particular interest. It is because they are a good leading indicator of future employment trends.

When during a downturn an employer first sees a pick up in demand, he will not know if it is just a temporary blip, or the start of a real recovery. Thus, he is going to be hesitant to take the time and expense of bringing on new workers who will just have to be laid off it if does turn out to be just a blip. The first thing she is going to do is work the existing workforce harder. This is particularly if hours have been previously cut back due to slow demand.

The upward trend in the average workweek is a very good sign in that regard, in addition to the fact that working more hours means more income, and thus more spending by hourly employees.

The second thing an employer will do when faced with an increase in demand is going to be to call a temp agency. Only when the employer is reasonably sure that the upturn is for real and will last will he figure that it is worth bringing on a full-time permanent employee.

However, with the exception of July, temp jobs have been rising every month for over a year, and one would think that we would be starting to see those translating into permanent jobs at a faster rate at this point. That disconnect could be pointing to some sort of structural shift in the employment market, but it is too early to say.
 
Hard to Find Silver Linings

Overall, this was a much weaker than expected report in almost every respect. This is particularly true on the private sector employment side, as the weakness in state and local jobs was expected due to severe budgetary pressures on state and local governments. The household survey which provides the unemployment rate (and the participation and employment rates) was even worse than the establishment survey in terms of job losses, showing a loss of 173,000 jobs.

However, if we include discouraged workers as well as the involuntary part timers, the underemployment rate (U-6) actually was unchanged at 17.0% and is down from 17.2% a year ago. Those who are working part-time for economic reasons even though they want a full time job, fell by 182,000 on the month, but remain 253,000 higher than a year ago. The number of people working part time when they would like to have full time jobs fell to 9.225 million from 9.472 million in October. This still indicates a huge amount of economic slack over and above the number of people that are actually unemployed.

Slow Pace of Job Creation

The pace of job creation we are seeing is not going to be enough to put a dent in the huge numbers of people who are without work and want it. Yes, the pace of job creation in this recovery is much better than it was coming out of the last two recessions, but that is pretty cold comfort for those who are being forced into abject poverty because they can't find work despite months and months of pounding the pavement (or the keyboard as is more likely these days). Most of those people are really not going to be all that interested in how the pace of this recovery compares to the pace of the recovery following the 1991 downturn, they just want a job that can support their family.

The damage done by this downturn was far deeper and more extensive than in those downturns. The final graph below, also from (http://www.calculatedriskblog.com/) shows just how deep and nasty this downturn was relative to all the post-war recessions that came before it. By this long after the previous peak in employment, in every case but one (2001) the economy had fully recovered and had more total jobs than when the recession started.

While clearly we have started the upturn, with or without census hiring, it is going to take a very long time before we surpass the total number of jobs the economy had back in December of 2007. At the pace of the first half of the year it would be in mid-2017 before we saw a new peak. Even if we could go back to the awesome job creation pace of the late 1990's it would be 2013 before we got back to pre-Great Recession levels of employment. At the pace of the last year, it will be 2021 before we pass the last peak in total employment.



Stimulus Wearing Off

The fiscal stimulus, as helpful as it has been in preventing a much deeper downturn and giving us the start of a recovery, is starting to wear off. Unfortunately there seems to be no appetite in Congress for renewing it. The next Congress is likely to reverse course and put us on a concretionary fiscal policy.

The GOP won the House partly based on misguided demands that we immediately try to balance the budget. In the process, we are likely to repeat the mistake that FDR did in 1937 when he prematurely cut back on the New Deal stimulus. This pushed the economy back down, and it only revived when a much bigger stimulus, known as WWII, came along.

We will not get much progress on the deficit either, as the spending cuts may well be offset by a continuation of the Bush tax cuts for everyone, not just the lower 98%. That “stimulus” going to the top 2% is not likely to be very effective in creating many jobs. Just how many maids and chauffeurs do plutocrats really need, and how many are they going to hire on the margin?

The stimulus spending at the Federal level was substantially offset by anti-stimulus for the state and local levels. That anti-stimulus is continuing. Recently the biggest single infrastructure project in the country -- a desperately needed second railroad tunnel under the Hudson River -- was cancelled because the Governor of New Jersey did not want to put up one third of the cost. That project would have created thousands of new jobs, and jobs that would go to the very hard-hit construction industry. It would have had a very high social return on investment by easing traffic congestion going into New York City and made life easier for all the New Jersey residents who commute into the city.

Hypocritically, those who are demanding immediate cut backs in spending to get the budget deficit under control are demanding that the biggest source of the deficits -- the Bush tax cuts, particularly those on the highest incomes -- be made permanent. Call it the pro-high unemployment caucus in Congress. It will now have the gavel in the House, and 47 members in the Senate.

The additional $600 billion of monetary stimulus from the Fed will help, but is likely to be far less effective than additional fiscal stimulus would be. Short-term rates are already as low as they can go, and long term rates are new historic lows. Pushing down interest rates a little bit further might help a bit at the margin, but is not going to make a lot of difference. Fiscal stimulus would be far more effective at this point.
 
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