Ed Dolan's Econ Blog

Best Jobs Report in a Long Time Leads Off the Election Season

Everyone knows what this election will be about: jobs, jobs, jobs. If so, the latest numbers from the Bureau of Labor Statistics should shake things up a little.

The headline number in the report is a relatively robust gain of 200,000 jobs in December, confirming that the jobs market is picking up after a mid-year slump. The November gain was revised downward from 120,000 reported last month to just 100,000, but that was partly offset by an upward revision of the October figure from an originally-reported 100,000 to 112,000.

There was good news in the line-by-line numbers, as well. Goods-producing jobs increased by 48,000, after a decrease in November. About half of those were in manufacturing, which had been flat for most of the quarter. As has been the case all year, the private sector was healthier than government. There were 212,000 new private-sector payroll jobs, compared with a loss of 12,000 government jobs. Most of the government jobs were lost at the local level. State employment was flat, and federal non-postal jobs grew slightly.

As has been true all year, the service sector accounted for the bulk of job formation, but the pattern here changed subtly as well. Transportation and retail trade gained strongly. Financial service jobs were almost unchanged. Health care, which had been almost the only job creator in some of last year’s worst months, continued to grow but it was no longer the strongest source of jobs.

Turning to data from the household survey, there was more good news. The unemployment rate dropped by two points, from 8.7 percent in November to 8.5 percent in December,  its lowest since February 2009. Oops, you say, wasn’t last month’s unemployment rate 8.6 percent, not 8.7? No, your memory isn’t failing, but the new data include an annual revision of the seasonal adjustment factor for the unemployment rate, no more than 10 basis points in most cases. This chart shows the revised numbers going back to 2008.

Here’s an interesting footnote for those who like to chronicle all the gory details of the Great Recession: We had  previously been told that the unemployment rate was over 10 percent for three months, after peaking at 10.1 percent in October 2009. Applying the new seasonal adjustments, it turns out that the October 2009 peak rate was just 10.0 percent, and that was the only month that unemployment reached double digits.

The household jobs survey reported that 176,000 found work in the month, somewhat fewer than reported by the separate payroll survey. The two surveys rely on completely different samples. Because the household survey includes farm workers and self-employed persons, it often shows more added jobs, but not this time. In a further positive sign, only a small part of the decrease in the unemployment rate was caused by withdrawals from the labor force (50,000). The employment-population ratio was unchanged, after four months of increase from the all-time low reached in July. Some 92,000 fewer people were unemployed for half a year or longer, continuing another favorable trend.

Some economists argue that the official unemployment rate understates the degree of employment stress facing the U.S. population. Acknowledging that these critics have a point,  the BLS publishes an alternative measure called U-6. The numerator of U-6 includes the officially unemployed, marginally attached persons who would like to work but are not looking because they think there are no jobs, and part-time workers who would prefer full-time work but can’t find it. The denominator includes the labor force plus the marginally attached. U-6 runs much higher than the official unemployment rate, but generally moves in the same direction. In December, U-6 fell from 15.6 percent to 15.2 percent, a three-year low. It had peaked at 17.4 percent in October 2009, the same month as the peak for the standard unemployment rate.

Tired of all the good news?  Here’s a depressing detail hidden away in the new BLS report: While the overall unemployment rate fell, the rate for workers who had not finished high school rose by half a percentage point, to 13.8 percent. In the same month, local governments laid off 9,400 teachers, the biggest decline for any category of government employment. Huh?

Despite a generally positive report, the job market situation is still very weak by historical standards. The headwinds the U.S. economy will face this year—the euro, risk of a hard landing in China, volatile oil prices, and all the rest—will still be blowing strongly. Still, in politics, single data points count, short-term trends count a lot, and headlines make all the difference. In public, President Obama will avoid overstating the significance of the latest numbers, but there will high-fives behind the scenes in the White House. All the more so since the Iowa caucus results appear to increase the chance that come November, he will face the candidate with the weakest job-creation credentials of any in the Republican pack.



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