Details on Employment Report (pt. 2) - Analyst Blog

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 good for almost all demographic groups. In December, the unemployment rate for adult men (over 20) fell to 9.4% from 9.9% November. It is down from 10.2% a year ago.

A bit of the decline is an illusion, though, as the participation rate for men fell from 73.9% a year ago to 73.5% in December, and down from 73.7% in November. The employment rate for men did rise to 66.7% from 66.4% in November and a year ago. Thus the employment situation for adult men has improved relative to both last month and a year ago, but not by as much as the drop in the unemployment rate would suggest.

For women, the unemployment rate fell to 8.1% in December, up from 8.3% in November, and 8.2% a year ago. The participation rate was 60.1%, down from 60.2% in November, and the employment rate was unchanged at 55.3%. A year ago they were at 60.3% and 53.4%, respectively. Again, some real progress, but not as much as the change in the unemployment rate alone would suggest.

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.

Teen Employment

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 are from acne, not age spots, as is the case now. In December, the teen unemployment rate rose to 25.4% from 24.5% in November, but it is down from 26.8% a year ago.

The deterioration from last month is worse than it appears, and the improvement from last year is an illusion due to a falling participation rate, which dropped to 34.3% from 34.6% in November, and 35.8% a year ago. The percentage of teens that actually have a job was just 25.6%, down from 26.2% in November and 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.

Breakdown by Race

Not surprisingly, Whites have a lower unemployment rates that do Blacks or Hispanics. But this month all ethnic groups saw the unemployment rate fall. However, when one looks a little deeper, the improvement was more real this month for Whites than it was for Blacks and Hispanics.

The rate for Whites fell to 8.5% from 8.9% in November, and down from 9.0% a year ago. The participation rate though fell to 64.7% from 64.8% last month and 65.1% last year. The employment rate for whites rose to 59.2% from 59.0% in November and matched the year-ago level.

The unemployment rate for Blacks fell to 15.8% from 16.0% in November, and 16.2% a year ago. Here though, the change in the headline unemployment numbers for the month are a bit exaggerated due to changes in the participation rate.

For the month, the participation rate for Blacks fell to 62.1% from 62.4% in November. On the other hand, it was 61.9% a year ago. The employment rate for Blacks fell to 52.3% from 52.5% in November, and 58.5% a year ago. The unemployment rate is 86.8% higher than for Whites, and the employment rate is 11.6% lower (52.3% vs. 59.2%). The participation rate is just 4.0% lower. A year ago the participation rate was 4.9% lower and the employment rate was 12.3% lower.

For Hispanics, the unemployment rate in December fell to 13.0% from 13.2% in November and up from 12.8% last year. The monthly improvement is mostly an illusion, as the participation rate fell to 66.9% from 67.2% in December, and below the 67.1% level last year. The employment rate fell to 58.2% from 58.4% in November. A year ago the Hispanic employment rate was 58.5%.

Stay in School

The unemployment rate for high school dropouts fell to 15.3% in December from 15.7% in October. It was as low as 13.8% in July, so has been rebounding badly in recent months. It is equal to the a year-ago level. Again, the monthly improvement is mostly an illusion but relative to a year ago the situation is actually somewhat better.

The participation rate amongst the drop outs fell to 46.0% from 46.6% in November, but is up from the 45.6% level of a year ago. The percentage of high school drop outs actually employed fell to 39.0% from 39.3% November, but is up from 38.7% last year. I should note here that the numbers by level of education refer to people over age 24, and so are not directly comparable to some of the other numbers.

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 9.8% from 10.0% in November and is down from the 10.6% rate a year ago. In all three months, the level was far below that for drop outs.

This month the unemployment rate for dropouts was 56,1% higher than for those who at least finished high school. However, the participation rate fell to 60.9% from 61.1%. A year ago it was at 61.6%, so the improvement is somewhat of an illusion. The employment rate for high school grads also fell on the month to 54.9% from 55.1% in November and 55.2% a year ago.

Those who went to college but did not finish or only got an Associates Degree, had an unemployment rate of 8.1%, down from 8.7% in November, and down from 8.8% a year ago. Unlike for those who never went to college, here the improvement looks real. The participation rate for Associates Degree holders rose to 70.2% from 69.8% in November, but is down from 70.5% a year ago. The employment rate rose to 64.5% from 63.8% in November and is above the 64.3% level of a year ago.

For those who stay in school to get their BA (or higher) the unemployment rate fell to 4.8% from 5.1% in November, and is down a tick from 4.9% a year ago. The monthly improvement is actually better than it looks because the participation rate rose to 76.9% from 76.6% in November, but it is slightly below the 77.1% level of a year ago.

The percentage of college grads with jobs rose to 73.2% from 72.7% in November, but remains just below the 73.3% 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.

Unemployment and Household Formation

The overall unemployment rate for all people regardless of education over 24 years old was 8.1% in December, down from 8.4% in November and down from 8.5% a year ago. The unemployment rate for people 20-24 -- those who are just entering the full-time workforce -- was 15.3%, up from 15.9% in October, and down from 15.7% 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. The improvement in the unemployment rate for these folks is good news, but the level is still extremely problematic.

The unemployment rate for those a bit older, the 25 to 34 year old cohorts -- which is the prime age for first time home ownership -- is a bit lower but still higher than the average to 10.1%, down from 10.4% last month and 10.2% a year ago. Lowering the unemployment rate amongst these people will be key to resolving the housing problem.

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 20,000 workers, and have trimmed their payrolls by 250,000 over the last year. Actually, it is all at the local government level where the declines are occurring as the number of state employees was unchanged on the month and is actually up by 6,000 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 federal government added 10,000 jobs in the last month and 28,000 over the past year.

The private sector added 113,000 jobs, a nice improvement from an addition of 71,000 jobs in November, but well below the 172,000 added in October. While the December increase was not as big as expected, there were substantial upward revisions to the previous two months. November was revised up from a gain of 50,000 and October was revised up from 172,000.

A year ago, the private sector dropped 83,000 jobs in December. This is the twelfth straight month that the private sector has added jobs, with a total increase of 1.346 million over the last year. In a normal year, that would be a solid showing, but we lost over 8 million jobs in the Great Recession, so we still have our work cut out for us.

Construction

Within the private sector, the goods producing sector lost 2,000 jobs. The construction industry lost 16,000 jobs, on top of a loss of 2,000 in November. 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 2.121 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 1.888 million, or 25.2%. Since the peak, overall private sector employment is down by 7.121 million. In other words, this one industry is directly responsible for 30% of all job losses since the end of 2007.

Manufacturing

Manufacturing gained 10,000 jobs, more than reversing the 8,000 jobs lost last month. Manufacturing employment has been in a secular decline for about 30 years, but it has actually fared pretty well over the last year or so. The peak in manufacturing jobs was way back in July of 1979 at 19.531 million.

By the time the Great Recession started in December 2007, the number of manufacturing jobs was already down to 13.726 million. The low in manufacturing jobs was a year ago at 11.534 million, and over the last year we have gained back 136,000 of those jobs. Still, relative to the start of the Great Recession manufacturing jobs are down by 2.056 million, representing 28.9% of all job losses from the peak.

Services: Health Care & Temp Jobs

The service sector gained 115,000 jobs in the month, up from an increase of 84,000 in November (revised from a gain of 65,000) but down from a gain of 183,000 in October (revised from 157,000). A year ago the Service sector lost 29,000 jobs. Relative to a year ago, private service sector jobs are up by 989,000, but are still off by 3.324 million from the start of the Great Recession.

One of the biggest contributors to service sector jobs, as always, was the health care industry which added 37,100 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.

Of particular interest is the increase in temporary workers. Those jobs increased by 15,900 in December on top of 31,100 in November. 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 he 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 since August 2009, 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. Since 8/09 the number of temps is up by 485,000 or 28%, but is still 13% below the level at the start of the Great Recession.

Lots of Crosscurrents

Overall, I would have to rate this report as mixed. The number of jobs added was well below the expected levels, even well below the levels that were expected prior to the ADP report on Wednesday. On the other hand, there were substantial upwards revisions to the job totals for both October and November.

The November report was also a big disappointment in terms of the overall job adds for the month, but it too saw significant upwards revisions to prior months. This leads me to suspect that the December job totals are likely to be revised up when we get the January report.

The drop in the unemployment rate makes for a nice headline, but there was much less to it than really meets the eye once the underlying participation rate and employment rates are examined. That is not to say the drop in the unemployment rate was false, just overstated.

However, if we include discouraged workers as well as the involuntary part timers, the underemployment rate (U-6) also fell to 16.7% from 17.0% in November and is down from 17.2% a year ago. That is good news, at least in terms of the direction -- the level is still just plain awful.

Those who are working part time for economic reasons even though they want a full-time job, fell by 29,000 on the month, and is 162,000 lower than a year ago. This still indicates a huge amount of economic slack over and above the number of people that are actually unemployed, but that some of that slack is slowly being absorbed.

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).

Recovery in Name Only?

Officially we are now 18 months into an economic recovery, and the economy has added a total of 378,000 private sector jobs since then. At the same point after the 2001 recession was over, the economy had actually lost an additional 1.301 million jobs, and after the 1991 downturn, 18 months into the recovery the economy had added a total of just 9,000 jobs.

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. However, the point is that it is not unusual for the pace of job creation to be slow even after the recession has been over for awhile.

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, long time before we surpass the total number of jobs the economy had back in December of 2007. At the December pace, it would take 63 more months from here, that's over five years to get back to the 12/2007 peak in private sector employment. 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.

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 new Congress is likely to reverse course and put us on a concretionary fiscal policy. And the stimulus spending at the federal level was substantially offset by anti-stimulus for the state and local levels.

While it is true that you don't want to raise taxes in a recession or in an incipient recovery, it is equally true that you don't want to cut government spending. Tax increases and spending cuts are both forms of fiscal contraction. Not all tax cuts or spending are equal in terms of stimulating the economy and creating jobs.

The cut in the payroll tax is likely to be quite effective in stimulating the economy since it will result in higher take home pay to people who are likely to spend it quickly. Cuts in spending on overseas adventures in Iraq and Afghanistan would not do much damage to domestic employment but the spending there is not primarily about domestic employment. Cuts in social safety net spending, which is apparently high on the agenda of those pushing to cut spending right away is likely to be a major drag on the economy and job creation.


 
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