Recent stronger nonfarm employment data and drop in the unemployment rate to 8.5 percent provide at least a glass is “half full” assessment of the economic environment. Unfortunately, the glass is very small.
Employment Rises Solidly In December
Nonfarm payrolls rose by 200,000 in December. There were five weeks between the November and December employment surveys and that may have allowed for more holiday-season hiring to be captured in the December report.
Retail trade added 27,900 jobs in December, following a 38,800-job rise in November. Hiring also surged at couriers and messengers, reflecting the boom in online retailing.
Unemployment Rate Falls to 8.5 Percent
The household employment data now include new seasonal factors, which tended to reduce the swings in the jobless rate.
Household employment increased by 176,000 in December and rose by 1.4 million jobs during the second half of 2011. During this time, the nonfarm numbers show that close to 43 percent of the job gains were in low-paying sectors, which helps explain why hourly earnings and personal income grew so sluggishly.
A Closer Look At The December Employment Report
Nonfarm employment rose by 200,000 in December, as hiring jumped at couriers and messengers in order to handle the surge in online holiday retail sales. The unemployment rate fell to 8.5 percent.
A Stronger Report, But Not a Game Changer
While December’s net gain of 200,000 nonfarm jobs topped consensus estimates, the report was helped by a host of special factors and also followed downward revisions to the two previous months. Three industries accounted for a disproportionate share of December’s increase, including couriers and messengers, which added 42,200 jobs. Similar spikes were seen during the past couple of years and those gains were completely reversed the following month. Hiring in retail trade and construction may also have been impacted by temporary factors. The former added 27,900 jobs, mostly at department stores and clothing outlets. The latter was clearly helped by warmer than usual weather, leading to a 17,000-job rise in construction payrolls. Excluding couriers, retailing and construction, nonfarm payrolls rose 112,900 in December, which is close to the 100,000 and 112,000 gains reported for November and October, respectively.
Even with some distortions, the quality of jobs improved modestly in December. Manufacturers added 23,000 jobs during the month, with solid gains at producers of motor vehicles, machinery and computers and electronic products. Average weekly hours worked in manufacturing rose 0.2 percent in December, partially reversing a 0.5 percent drop in the prior month. Aggregate weekly hours in manufacturing rose 0.5 percent, which bodes well for industrial production. Hours rose even more dramatically in mining and construction, jumping 1.2 and 1.1 percent, respectively. Total hours worked rose at a 3.2 percent annual rate in the fourth quarter, which is the third best quarterly showing since the recession ended, consistent with our forecast for 3.7 percent real GDP growth during Q4.
The rise in manufacturing employment and hours worked should bolster income growth. Average hourly earnings rose 0.2 percent in December and weekly earnings rose 0.5 percent, reflecting the rise in hours worked. The better news on earnings helps reverse some of the earlier weaker readings. Nearly 43 percent of the jobs added during the past six months have been in relatively low paying industries, such as retailing, temporary staffing, leisure as well as hospitality and home health care. These industries have accounted for nearly twice as large a share of job growth in recent months as they account for the overall employment base.
December’s drop in the unemployment rate looks fairly genuine, despite a 50,000 person drop in the labor force. The BLS updates the seasonal adjustment factors each December and the new numbers removed November’s plunge. The jobless rate still drifted lower during the second half 2011, however, as civilian employment rose by 1.4 million compared to population growth of only 1.1 million over the same period. The number of unemployed has fallen by 927,000 since June, while the number of people not currently in the workforce rose by 617,000.