Allow us to preface this comment by reminding readers that the path to economic recovery will (eventually) be paved by growth in aggregate (i.e. not just average) personal income – which means a combination of (a) more people employed (both on a nominal basis and as a percentage of population) and (b) an improvement in the earnings of those employed.
We note this obvious truism to highlight our reaction to today’s Employment Situation report from the BLS.
Let’s get beyond the hubbub over the algorithmic anomalies that bedevil the disparity between the ADP and BLS interpretation of jobs added in December and, as we do each month, drill down into the details of what the labour Department has to tell us.
The reduction in the number of unemployed (and the driver of the reduction in the headline unemployment rate to 9.4%) derives nearly equally from a decline of 260,000 in the labour force and the addition of 297,00 people who say they are employed (in one form or another).
While the additional jobs (in both the household and establishment surveys) are greatly welcome, it will be tough to boost aggregate personal income with fewer people seeking work. This is also seen in an employment-population ratio that is essentially unimproved from one year ago.
The aggregate number of people who count as employed actually fell during the 4th quarter – from 139,267 at the end of August to 139,206 in December.
Average weekly hours worked have been flat at 34.3 for the entire quarter and hourly wages have risen by an infinitesimally small 0.17% (4 cents/hour) – lagging by half the rate of CPI growth during the same period.
We are seeing what appears to be evidence of structural unemployment among those in the prime, higher earning 35 to 44 year old demographic, where unemployment actually increased in December, both on a nominal and percentage basis. While we continue to see employment increase among younger, cheaper, workers, this month we saw a sizable jump in the number of workers 55 and over – reflecting a trend towards the re-entry into the labour force by older Americans affected by economic dislocation, as well as an ageing population. Nominal employment in the 55+ demographic has increased by 3.30% over the past 12 months, while employment in the 25 to 54 year old demographic has declined by 0.07% during the same period.
While the headline (U-3) unemployment rate declined at the rate of 0.408% from 9.8% to 9.4%, the rate of decline in the U-6 underemployment rate was only 0.18% (from 17.0% to 16.7%) as the marginally attached labour force actually increased by 13.5% (from 1.13 million to 1.28 million) partially offsetting the decline in the headline labour force number, and we continue to rely on a good deal of employment that is part time for economic reasons.
The Establishment survey saw 100% of the net headline job increase coming from the service sector (with goods producing jobs flat, and actually declining significantly on a non-seasonally adjusted basis). The 113,000 job, private sector increase was entirely dependent on seasonal adjustment factors (declining by 205,000 on an unadjusted basis) and was over 80% dependent on the perennially increasing healthcare sector and the seasonally sensitive leisure and hospitality (particularly food services – do we hear the sizzle of hamburger flipping in the background?) sector.
While the employment situation is not as dire as that which faced us earlier in the year – a dynamic employment recovery this is not. We remain laser focused on the number of wage earners, their wages and hours, the dispersion of workers among higher and lower earning demographics and a deceasing reliance on temporary employment and as the real measures of macroeconomic impact. We didn’t get what we wanted this Christmas from the Bureau of labour Statistics.
Short Note on Early Retail Sales Data
The fairly lackluster chain store sales data that has hit the tape this week has confirmed for us the suspicions raised in our November report Retail Sales as Echoes of a Pre-Crisis Habit and commented on again in the attached email. We await this afternoon’s consumer credit data and next Friday’s full December retail sales report from the Census Bureau, but if this early trend shows up in the broader data, it will provide significant support for our view that expansion and contraction of retail sales in the post-panic U.S. economy has been predominantly the result of fluctuations in the use and repayment of consumer credit facilities, not the normal recovery patterns expected following a garden-variety recession. These activities principally represent the overall recent patterns of consumer saving, punctuated by periodic dis-saving as credit facilities free up, are employed again, and then must be paid down anew.
The only escape from the foregoing pattern lies in improvement in aggregate (not average) personal incomes, at which we can only hope that 2011 gives us a better shot than did 2010.
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