Employment Report In Depth, pt. 2 - Analyst Blog

(The following is a continuation of an earlier post: Employment Report In Depth, pt. 1.)

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. In October, the unemployment rate for adult men dipped to 9.7% from 9.8%, in both September and August. It is down from 10.6% a year ago.

A bit of that is an illusion, though, as the participation rate for men plunged from 74.2% in September to 73.8% in October, and a year ago it was 74.6%. The employment rate for men ticked down to 66.7% from 66.9% in September, and was also the 66.7% rate of a year ago.  

For women, the unemployment rate rose to 8.1% in October, up from 8.0% in September, and unchanged from a year ago. The participation rate fell by one tick to 60.2% and the employment rate fell by two ticks to 55.3%. A year ago they were at 60.4% and 55.6%, respectively. This is one gender gap that has worked in favor of women, but slowly the genders seem to be headed in the direction of equality.

There are two possible reasons for men have fared far worse than women in this downturn. 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.

Breakdown by Age Group

Teens, regardless of gender have had a very hard time of it in this recession. 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 rose to 27.1% from 26.0% in September but it is down from 27.6% a year ago. The increase, though, was all due to a big rise in the participation rate which rose to 35.2% from 34.2% in August, but below the 36.1% rate of a year ago.

The percentage of teens that actually have a job was just 25.6%, up from 25.3% in September but down from 26.1% 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.

Blacks, Whites, Hispanics

Not surprisingly, Whites have a lower unemployment rates that do Blacks or Hispanics. But there is a little bit of movement towards more racial equality this month. The rate for Whites was ticked up to 8.8% from 8.7% in both September and August, but down from 9.4% a year ago.

The participation rate though fell to 64.9% from 65.2% and the employment rate for Whites fell to 59.2% from 59.5% in September and 59.4% a year ago. The employment rate for Whites had held steady at 59.5% for four straight months prior to this month.

The unemployment rate for Blacks fell to 15.7% from 16.1% in September, and is now at the same level as a year ago. Here again, the headline unemployment numbers are deceptive due to changes in the participation rate. For the month, the participation rate for Blacks rose to 62.2% from 61.7% in September, and equal to the year-ago level. The employment rate for Blacks rose to 52.4% from 51.7% in September and the 52.0% rate of last year.

For Hispanics, the unemployment rate in September rose to 12.6% from 12.4% in September but down from 13.1% last year. The monthly deterioration is worse than it appears though as the participation rate fell to 67.0% from 67.5% in August, and below the 67.7% last year. The employment rate actually fell to 58.6% from 59.2%. A year ago, the Hispanic employment rate was 58.9%.

Stay in School

The unemployment rate for high school dropouts fell to 15.3% in October from 15.4% in August. It was as low as 13.8% in July and still below the 15.5% year-ago level. The improvement in the job situation for those without even a high school education is for real. The participation rate amongst the drop outs rose to 47.0% from 46.7% in September but is down from the 47.2% level of a year ago.

The percentage of high school drop outs actually employed rose to 39.8% from 39.5% August, but down from 39.9% last year. Those that dropped out of high school have dropped out of the labor force over the 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) rose to 10.1% from 10.0% in September but is down substantially from the 11.2% rate a year ago. In all three months, the level was far below that for dropouts.

The participation rate fell to 61.4% from 61.9%. A year ago it was at 61.8%. The employment rate for high school grads also fell on the month to 55.2% from 55.6% in September, but is up from 54.9% a year ago. The deterioration for the High School grad group is thus a bit worse than the raw one tick up would indicate.

Those who went to college but did not finish, or only got an Associates degree, had an unemployment rate of 8.5%, down from 9.1% in September, and 9.0% rate a year ago. The good news for those with associates degrees is actually somewhat illusory since the participation rate fell to 70.2% from 70.4% in September and from 70.9% a year ago. The employment rate though did rise to 64.2% from 64.0% in September but is still below the 64.5% level of a year ago.

For those who stayed in school to get their BA (or higher), the unemployment rate rose to 4.7% from 4.4% in September, and unchanged from a year ago. The monthly deterioration is actually worse than the unemployment rates suggest because the participation rate fell to 76.1% from 76.4% in September and the 77.4% level of a year ago.

The percentage of college grads with jobs fell to 72.6% from 73.1% in September and remains below the 73.7% 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.

Where the Jobs Are (and Are Not)

As mentioned at the outset of this post, the layoffs of temporary Census workers is no longer a significant issue, with just 5,000 laid off, and just 1,000 remaining. This is a huge change from recent months. The state and local governments laid off 7,000 non-education workers, and have trimmed their payrolls by 123,000 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 159,000 jobs, up from an addition of 107,000 jobs in September (revised up from a gain of 64,000), and from the 143,000 jobs it added in August (revised up from a gain of 93,000 jobs). A year ago, the private sector shed 262,000 jobs in October. This is the tenth 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 added 5,000 jobs. The construction industry gained 5,000 jobs, after losing 4,000 jobs in September (revised from a loss of 21,000). 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. The increase in October is a bit surprising and is most likely tied to public construction, such as roads and school buildings, not to home building or the construction of offices buildings.

Manufacturing lost 7,000 jobs, on top of the 2,000 jobs lost last month, making it the third month in a row of manufacturing job losses after a nice string of increases. These numbers confirm what ADP said on Wednesday, but seem to contradict 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 added 154,000 jobs in the month, up from an increase of 111,000 in September and 126,000 in August. Private service sector job gains were revised up from 86,000 in September and 83,000 in August. A year ago, the service sector dropped 131,000 jobs. One of the biggest contributors to service sector jobs, as always, was the health care industry which added 34,000 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.

Temporary Workers

Of particular interest is the increase in temporary workers (here we are talking about temps working for firms like Kelly Services [KELYA] and Manpower [MAN], not the Census workers). Those jobs increased by 34,900 in October on top of 23,800 in September and 22,500 in August.

It is not that being a temp is the greatest of 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 think she is going to do is work the existing workforce harder. This is particularly if hours have been previously cut back due to low demand. The upward trend in the average work week 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.
 
Better than Expected but Not Good Enough

Overall, this was a stronger-than-expected report in terns of total employment from the establishment survey. This is particularly true on the private sector employment side, and when the revisions to prior months are also considered. The household survey which provides the unemployment rate (and the participation and employment rates) was actually a little bit worse than expected.

This is a reverse of what we saw in September, when the establishment survey was a bit disappointing, but the household survey was a bit stronger than expected. It actually showed a decline of 330,000 total jobs and a rise of 76,000 in the total number of unemployed. The private sector continues to add to jobs, and has now done so for 10 straight months.

The unemployment duration numbers were disappointing. We did see a little bit of improvement in the under-employment rate, which includes those who are working part-time for economic reasons even though they want a full-time job, and also discouraged workers, who would like a job, but have not looked in the last month since they think the effort would be futile.

This measure of underemployment (U-6) ticked down from 17.1% in September to 17.0% in October and is down from 17.4% a year ago. The number of people working part-time when they would like to have full-time jobs fell to 9.154 million from 9.472 million in September. Along with the rise in the average work week, this seems to indicate that employers are trying to more fully utilize their existing workforces, rather than adding new people.

All that being said, however, 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, 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 2017 before we pass the last peak in total employment.



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 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 the 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.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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