Labor Market Update: Still Struggling
Raymond James
By Scott Brown
December 6, 2010
The November Employment Report was disappointing. The stock market had set its sights high, anticipating stronger growth in nonfarm payrolls and a steady unemployment rate. Moreover, market participants seemed to be hoping for an upside surprise relative to the consensus forecast. The holiday shopping season apparently got off to a strong start, but that failed to translate into a corresponding jump in retail employment (at least, on a seasonally adjusted basis). Manufacturing jobs were soft. State and local government continued to shed jobs, reflecting budget strains. What’s in store for 2011? The November jobs data aren’t encouraging, but the recovery is likely to remain on track.
Weekly claims for unemployment insurance benefits have been choppy in recent weeks (as they always are during this time of year), but the underlying trend has been falling (yet, still far from levels that would be associated with a “strong” job market). A common question is, if jobless claims are running over 400,000 per week, why aren’t we seeing 1.6 million job losses each month? The answer is that there is a lot of flux in the labor market. Every quarter, millions of jobs are destroyed and millions are created (much of this is seasonal, related to the school year and the holiday shopping season). We tend to focus on the net change. The claims data would seem to cover just half of the equation: job destruction. However, a better rate of job creation would lead many of the newly unemployed to accept another job right away, reducing the odds of filing a claim for unemployment insurance benefits. Still, given all that, the broad range of labor market indicators suggests a relatively low rate of job destruction (announcements of corporate layoff intentions are trending at a low level) and limited improvement in new hiring. Much of the job growth in an expansion comes from small, newer firms, and credit for small firms has remained relatively tight (but should continue to loosen up over time).
The November Employment Report continues to reflect some worrisome details. Long-term unemployment remained elevated. Of the 15.1 million unemployed in November, 6.3 million (41.9%) had been out of work for 27 weeks or more. Not officially included in the ranks of the “unemployed,” there were 1.3 million discouraged workers and 9.0 million working part-time who would rather have a full-time job.
Extending unemployment insurance benefits in this environment seems like a no-brainer. As stimulus, you get a fairly significant bang for your buck. Extended benefits get spent, and re-spent, into the economy. Sure, there are some who abuse the system, but not many. Most rely on those benefits to pay for things like food and shelter. Not extending unemployment insurance benefits will lower the unemployment rate, but not because it forces “deadbeats” to go out and get jobs (although there will be some individuals who will cut their job searches short and accept lower paying jobs). Rather, you’ll see more people dropping out of the labor force, no longer counted as “unemployed” (most states require that you be looking for a job in order to receive benefits – that’s the same requirement to be officially counted as “unemployed”).
Uncertainty about tax policy has also been a factor limiting job creation. An extension of some or all of the Bush tax cuts would reduce that uncertainty. The economy will still face a number of headwinds in the first half of 2010, which should limit the pace of job growth in the near term. Those headwinds should decrease over time, allowing positive feedback loops to kick in later in the year and into 2012.
However, there’s still some danger that new hiring won’t pick up fast enough. Another round of federal fiscal stimulus would help offset that risk, but such action is politically unattainable. The Fed’s asset purchase program is not going to put the economy into a faster gear, but it should lend support in 2011.
(c) Raymond James
