The Bad News Behind the Good Jobs Numbers

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Victor J. Blue / Bloomberg / Getty Images

A construction crew prepare a Komatsu Ltd. excavator to use during the groundbreaking ceremony for the Hudson Yards development in New York, Dec. 4, 2012.

Never underestimate the importance of expectations. While most of us were bracing for a poor jobs report due to the disruptive effects of Hurricane Sandy, the headline numbers of 146,000 jobs added in November and a four-year-low unemployment rate of 7.7% sent stocks higher in the minutes after the reports’ release. The Labor Department claimed that the effect of Sandy on the report was minimal, saying in a statement, “Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November.”

In other words, we should not look at this report as surprisingly good given the effect of the super storm. Rather, the Labor Department claims that the jobs numbers should be analyzed without taking the storm into account at all. And by that standard, not only were the job numbers themselves fairly modest, but there are some worrying details in the report that should give one pause before celebrating these numbers too enthusiastically.

Construction Employment

The report showed a decrease in construction employment of 20,000 jobs. This is troubling — or at least confusing — if Sandy did in fact have a minimal effect on the report, as recent housing start data has been starkly positive, and just this week the Commerce Department announced that construction spending increased in October, showing the continuance of a positive trend. Unfortunately, it seems, this activity isn’t leading to job growth. Either that or the storm had more of an impact on these numbers than the Labor Department’s statement suggests.

Revisions to Previous Months

Each month, the Labor Department issues its estimate for the previous month’s job growth, but it also issues revisions for the two months prior to that as well. And this report showed a net downward revision of 49,000 jobs. So really this report gave us a net job gain of 97,000 — a much less impressive figure than the headline 146,000.

Declining Participation Rate

After showing a solid 0.3% gain last month, the participation rate — or the percentage of adult workers in the workforce — declined once again by 0.2%. That drop in the participation rate appears to be the primary reason the unemployment rate dropped to 7.7%, as the household survey actually showed a net decline in jobs. While some of the overall decline in the participation rate has been driven by demographic reasons — an older country is going to have fewer people able to work — that only tells part of the story. Some of the decline in participation is undoubtedly a product of a depressed economy, and a true jobs recovery would have this number moving upwards, rather than the other way around.

Overall, this report is probably nothing to get excited about either way. It’s roughly in line with the steady-but-unspectacular growth the economy has been producing for the past year. But any proper reading of the report will take into account some of the figures beneath the headline, and the details of this report say that it is less of a cause for celebration than the headline numbers would suggest.

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6 comments
mary.waterton
mary.waterton

The "official" unemployment rate is falling, but the number of people without jobs (as measured by the "participation rate") is climbing. Go figure.

sixtymile
sixtymile

Could the sudden end to massive campaign spending have any association here? That would not go on my list of "bad news."

CaliforniaBorn
CaliforniaBorn

Gee.  That funny little number called the participation rate keeps decreasing.  I hardly ever hear that from the media.

Stichmo
Stichmo

@CaliforniaBorn - The fact that the labor force participation rate is declining is not news.  The labor force participation rate includes everyone above age 16.  The overall labor force participation rate has been declining since about 2001, declining from 67.2% in January 2001 to 63.6% last month.   

The rate for men has been declining since we started keeping the statistic in 1948, from 87% in February 1948 to 70% in November.  People living longer in retirement are the reason for the decline. This trend was masked in the overall number by the increase in women's participation after the Civil Rights Act of 1964 prohibited sex discrimination in employment.  Women's participation increased from 38% in 1963 to 60% in 2000, before declining to 57.6% in November.  

Unless something drastic happens, the labor force participation rate will continue its downward trend.

FrankBlank
FrankBlank

Bad news behind the good news that sex is fun: Someday, you are going to die.

rjsigmund
rjsigmund

construction employment has been weak all year, even with a 50% YoY increase in housing starts...that's because most of the buildings are apartments..