January 09, 2004

A Lousy Jobs Report

A lousy December jobs report:

Payrolls Barely Rise, Worse Than Expected: American employers barely took on any new workers in December, a disappointing government report on Friday showed, indicating the economic recovery has yet to translate into sustained jobs growth.... The number of workers on U.S. payrolls outside the farm sector in December increased by just 1,000, after a downwardly revised rise of 43,000 in November. It was the fifth consecutive monthly rise but was far worse than economist expectations of a rise of 130,000.... "This is a very disappointing jobs report," said John Person, head financial analyst, Infinity Brokerage Services, Chicago.... However, the report showed a 38,000 fall in hiring in the retail sector, which the department said was due to general merchandise stores taking on fewer workers than usual.

The troubled manufacturing sector failed to break its job-cutting trend, shedding 26,000 jobs in December, the 41st month of declines. Some economists, pointing to recent data suggesting a turnaround in manufacturing, had predicted factories would finally take on new workers in December...

The gap between the size of the recession as measured by what is happening to the unemployment rate and the size of the recession as measured by other labor market indicators continues to grow. Since the summer the unemployment rate has fallen by six-tenths of a percentage point, but the employment-to-population ratio has not risen: it has fallen by one-tenth of a percentage point.

Posted by DeLong at January 9, 2004 06:49 AM | TrackBack

Comments

What does it mean?

Posted by: robb on January 9, 2004 06:54 AM

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Hourly earnings are up less in December vs year ago than at any time since 1987. Weekly and aggregate hours both fell in December. Duration of unemployment remains elevated. Under such circumstances, I trust the establishments over the household data.

John Challenger, who produces a monthly count of layoff announcements, points out that announcements spiked in October. He attributes that to managers getting a look at their results for the first 3 quarters of the year and seeing how much they need to cut costs. The worrying thing is that announcements have remained elevated. They were up vs year ago in December, for the first time in many months. That suggests to me that managers remain eager to contain costs. The fact that layoff announcements have done a good job of predicting the slowing in hiring in Q4 (better than new jobless claims or ISM employment data), means managers are not delaying much in carrying out layoffs.

Note also that inventory ratios remain on the floor, as inventories rise slowly in response to higher sales. Inventories and labor are two costs over which managers have considerable control in the short term. They seem to be exercising this control with a vengence. That suggests that both hiring and inventories will provide a smaller boost to growth than has been seen in prior recoveries.

Posted by: K Harris on January 9, 2004 07:38 AM

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Could someone also comment on the downward revision of new jobs for October/November? why the revision? Was this just late data trickling in from employers? And what does the downward revision say if anything about the labor market?

Posted by: David on January 9, 2004 07:41 AM

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I find it amusing when they say that this economic recovery is not producing jobs. They are...in India, China and elsewhere.

Posted by: Jean on January 9, 2004 07:52 AM

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How soon before the Bush spinners (e.g. Kaus, Drezner) decide to spend their time looking for the cherries in the household survey and ignoring the pathetic picture from the payroll numbers?

Posted by: P O'Neill on January 9, 2004 08:14 AM

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K Harris -- your comments & the employment report
are in line with my comments the other day that productivity growth is slowing so that firms will cut employment to sustain productivity growth to keep profits high. In the 4th Q hours worked rose 2.2% over the 3rd Q average even though hours worked fell 0.6% in December.

Moreover, this means average weekly earnings also
fell in December. In contrast, the income data
was just revised up to show that nominal personal income growth was stronger last year than originally reported. I have not yet looked to see what happened to the wage & salary component compared to other components.

I have a very good equation for average hourly earnings that makes it a function of inflation expectations -- trailing 3 years avg. CPI--,
the unemployment rate & capacity utilization.
the equation bottomed at 1.6% in June and is now at 1.8% vs 2.1 (smdtd) for the actual data.
The equation is bottoming because cap use has bottomed.

But we are left in a tough situation if productivity growth exceeds gdp growth employment and income stay weak and this has to feed into weak consumer spending.

Interestingly, while everyone talks about the unusual recovery, the stock mkt has also been unusual. the S&P 500 PE is now about 20 and has not changed significantly since Sept 2002 except for a minor drop and rebound around the war.
But typically or on average in the first year of a new bull market earnings are flat to down and the PE rebounds about 30%. But this time the
PE has been flat and earnings for the S&P 500
have risen sharply. But given the very low inflation rate, interest rates & risk premium
it is almost imposible to get a big PE rise.
So the stock market is even more dependent on earnings growth than normal.

Within the employment report the services weakness was concentrated in retail & this may be
a seasonal adjustment problem that could reverse in January. If retailers Xmas hiring was less than the seasonal adjustment anticipated than the retail lay-offs in January will not be as bad as the seasonal factors suggest.

Posted by: SPENCER on January 9, 2004 08:19 AM

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Damn, guess those lazy Americans still won't take jobs. Better hurry up and pass Bush's guest worker/amnesty program.

Sarcasm aside, this payroll number looks like a bit of an outlier to me. Unemployment claims are down, the employment indices in the ISM indexes look good, job postings are up, and I am personally seeing evidence of increased hiring activity. Not a job boom, but better than the completely stagnant job market today's numbers suggest.

One interesting number within the report was that I believe there was a decent increase in professional and technical services employment, something like +40,000-45,000. Perhaps the offshore outsourcing handwringing is a bit overdone. The retail jobs number was really weak probably reflecting less holiday seasonal hiring than in the past. This should bias the reported January payroll change upward since you will probably not have as much of a seasonally expected downward shift in retail employment.

Posted by: Joe Blog on January 9, 2004 08:20 AM

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Joe Blog -- But the ISM services index showed significant weakness in December.

the key data may be when the BLS reports the quarterly data that shows both job creation and job destruction. i suspect what that it will show the level of job destruction has fallen sharply but the level of job creation has not improved. this would be consistent with the
low claims data and the the employment report.

Posted by: spencer on January 9, 2004 08:31 AM

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If unemployment claims continue to drop, this indicates to me that it is small businesses and self-employed that are benefitting from tax breaks and the growth pickup, but not larger businesses (whether retailers or manufacturing).
This is good for Bush, needless to say - he's not getting a lot of union votes, anyway.

Posted by: Uber on January 9, 2004 08:38 AM

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If unemployment claims continue to drop, this indicates to me that it is small businesses and self-employed that are benefitting from tax breaks and the growth pickup, but not larger businesses (whether retailers or manufacturing).
This is good for Bush, needless to say - he's not getting a lot of union votes, anyway.

Posted by: Uber on January 9, 2004 08:43 AM

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The payroll number is always stated in employees gained or lost, not dollars increased or decreased. IE, I have at least a half dozen friends that are now working for half or less than they were making two years ago. This change through out the work force is not being measured, or at least anywhere I can find. Have seen that tax collections through payroll deductions are down even after factoring in for the tax cuts. If anyone can point me toward an analysis of total payrolls in dollars, would be much appreciated.

Posted by: chris/tx on January 9, 2004 09:03 AM

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If wages are going to drop precipitiously here for highly skilled labor, the housing bubble will have to burst.

Posted by: camille roy on January 9, 2004 09:46 AM

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This persisting problem in the labor market is truly troublesome, both for raw employment and wage and benefit levels. I grow more worried.

Posted by: anne on January 9, 2004 10:07 AM

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When CNN/Money tried to explain how payroll employment could rise by only 1000 as the unemployment rate dropped by 0.2%, they said something about differences between the payroll and household surveys (as well as the fact that reported labor supply fell by 309 thousand). Turns out the household survey shows a drop equal to 54 thousand. So will the NRO change its mind about the accuracy of the household survey? And will Luskin concede that Krugman had a point about discouraged workers?

Posted by: Harold McClure on January 9, 2004 10:21 AM

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How soon before the Bush spinners (e.g. Kaus, Drezner) decide to spend their time looking for the cherries in the household survey and ignoring the pathetic picture from the payroll numbers?

Posted by P O'Neill at January 9, 2004 08:14 AM

It'll be interesting to see what those so inclined could dredge up, but given the small decline in CPS employment and the net decline in CPS unemployment apparently being a move out of the labor force (one might think of such individuals as in some sense discouraged, even!), pickings there appear to be slim.

On the seasonality-surprise issue, it isn't obvious that one should expect a big effect there, given that the December 2003 release is using the concurrent adjustment method, and X-12-ARIMA is supposed to have enhancements for estimating outlier effects among other things.

Posted by: Tom Bozzo on January 9, 2004 10:26 AM

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My problem with these statistics is that all jobs are treated as equal when they are not. A person making $150k/year pays more taxes than ten people working in fast food. Economists have not added ways to measure the effect of losing the *good* jobs and replacing them with lower paying jobs in their analyses. We could have full employment and still run $500b deficits at the rate we are losing higher paying mfg and service sector jobs.

Posted by: chris/tx on January 9, 2004 10:37 AM

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Please note that income is being produced as the recovery proceeds, it's just not headed towards labor: earnings are increasingly healthy everywhere. This isn't such a bad thing, as we ponder the health of our 401ks, etc.

Posted by: Jim Harris on January 9, 2004 10:42 AM

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http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict

Payrolls fell last year by 331,000 (-0.3%) and by 1.5 million (-1.1%) in 2002. The last time payrolls declined for two consecutive years was in 1944-45.

In historical terms, this is very weak job growth for the current stage of recovery, more than two years after than expansion began in November 2001. This far into the last recovery, an average of over 200,000 jobs were being added per month. Last month's decline in the labor force was likely driven by this dramatic mismatch between job creation and the number of people who need jobs.

The labor force exodus has been particularly sharp for minorities, especially since the recovery began in November 2001. Since then, the overall drop in labor force participation has been 0.7 percentage points overall, and the same number for whites. But for African-Americans and Hispanics, the drop has been 1.4 and 1.6 percentage points, respectively.

On a year-over-year basis, wages grew 2%, about the rate of inflation. But over the fourth quarter, they grew at an annual rate of 1%, leading to diminished buying power among many in the workforce.

Posted by: anne on January 9, 2004 10:52 AM

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Off topic, but what are the thoughts of you economists on Henry Liu's article in the Asia Times?

Posted by: big al on January 9, 2004 11:03 AM

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Spencer -

S&P PE at 20? What am I missing? here it says it is 30.6: http://www.stockselector.com/sp500.asp

Posted by: Dave Johnson on January 9, 2004 11:54 AM

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Meanwhile, Gold up to $427.

With all of this deflationary news either the Dollar or Gold just doesn't mean as much as it used to.

Posted by: Michael Carroll on January 9, 2004 11:58 AM

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There are 2 ways to look at S&P p/e levels for the past 4 quarters. Company losses can be included or excluded. With losses excluded the p/e level would be about 20, while it is about 30 with losses included. Since losses are there now quarter after quarter, the higher figure seems far more honest.

Posted by: anne on January 9, 2004 12:02 PM

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hmm..I don't really think you can say that one jobs report tells the whole story. Tony Crescenzi is writing that he expects a monster(positive) job report sometime in the next three months.
Also, Administaff(human resources outsourcing firm) CEO was pretty enthusiastic going forward. He made the following points:
1. December is not exactly a big hiring month.
2. Their compensation figures showed a 3% increase from the previous year and a 6% increase in bonuses.
3. Believes that compensation is a precursor toe hiring and optimistic about U.S. economy.

Also, check out their chart.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=asf&sid=0&o_symb=asf

Posted by: William on January 9, 2004 12:25 PM

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Since commodity prices has been zooming up (due to rising demand from China) and businesses can't raise prices the only recourse is to not hire new workers, no matter what.

I think housing is not in a bubble because Americans understand intuitively that inflation is on the horizon, and property is a decent inflation hedge - and mortgage payments will become less onerous as inflation rises.

Posted by: claude tessier on January 9, 2004 12:26 PM

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Since commodity prices has been zooming up (due to rising demand from China) and businesses can't raise prices the only recourse is to not hire new workers, no matter what.

I think housing is not in a bubble because Americans understand intuitively that inflation is on the horizon, and property is a decent inflation hedge - and mortgage payments will become less onerous as inflation rises.

Posted by: claude tessier on January 9, 2004 12:28 PM

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K Harris -

"Inventories and labor are two costs over which managers have considerable control in the short term. They seem to be exercising this control with a vengence. That suggests that both hiring and inventories will provide a smaller boost to growth than has been seen in prior recoveries."


Please add that the poor job creation and resulting absence of wage and benefit leverage by labor will have the effect of adding to income and wealth divergence.

Posted by: anne on January 9, 2004 12:45 PM

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Pass it on!!! - get everybody you can (especially those on-the-fence about Bush) to watch 60 minutes this Sunday.

From Economy.com:

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O'Neill Slams Bush

Former Treasury Secretary Paul O'Neill criticized the president in an interview to be broadcast Sunday. According to press reports, O'Neill called the president disengaged on policy, giving his advisers little guidance as to his views. O'Neill said Bush cabinet meeting were like "a blind man in a room full of deaf people." The interview will air on "60 Minutes.".

Posted by: hbj on January 9, 2004 01:36 PM

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When a nasty suspicious mind combines with complete ignorance, the results are usually not great, but I wonder:

1. whether the initial numbers showed a loss in jobs, and they "revised" November downward in order to add those jobs in December, and show a net gain, however small?

2. Whether *part* of the large productivity gains comes from treating the rise in health care spending as productivity growth, reflecting better quality health care, rather than as inflation?

Posted by: roublen vesseau on January 9, 2004 04:57 PM

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David -the (usually) downward revisions

Reading Bloomberg, their numbers come from a poll of economic advisors. So the new jobs estimate for Dec ranged from 60,000 to 250,000 according to these pundits. Bloomberg forecasts, then 150,000. Average, median? --who cares as the actual number is 1,000. So what is the point of the poll--aside from re-enforcing the view that economics is an "art"?
With darts, if people are not finding the target, they move closer to the board. ( Weekly forcasts?) Or those who are hopeless can just watch. ( The poll for Jan is not going to include those who thought say 200,000 was a good guess.) Certainly if nothing is done, the respect for these forcasters (and their polled economists) sinks to the level of the lay person.
Well maybe not that high.

Posted by: calmo on January 10, 2004 07:41 AM

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Big Al-
Thanks for the link to a great article. For some great commentary on Greenspan's recent speech and more read this:
http://www.atimes.com/atimes/Global_Economy/FA10Dj01.html

It's like somebody switching the lights on. Thanks Mr. Lui.

Posted by: calmo on January 10, 2004 06:41 PM

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