The good-news/bad-news employment report

By Felix Salmon
November 5, 2010

The mathematics of the monthly payroll report don’t always make sense, since it’s actually two reports: the household report, covering employment and unemployment status, and the establishment report, showing the number of people being paid in various sectors of the economy.

The November report released this morning shows a clear divergence between the two: while the establishment report did well, with a healthy rise of 151,000 in total payrolls and upward revisions to previous months, the household report went nowhere, with the unemployment rate stubbornly unchanged at 9.6% and other key indicators, like the labor force participation rate and the employment-population ratio, actually heading in the wrong direction.

Overall, the private sector has now added more than a million new jobs over the past year — a good start, in the wake of the 8 million job losses we saw over the course of the recession. And 400,000 of those new jobs have come in the past three months. For people with jobs, wages and hours are rising, too. Over the past 12 months, average hourly earnings are up 1.7%, while average hours worked are up 1.8%, resulting in a rise in average weekly earnings from $753.20 to $779.64. That’s a raise of $1,375 per year — pretty healthy, given the state of the economy and the large number of people out of work.

But government employment is down, and the extra hiring simply isn’t making any kind of a dent on the unemployment figures. After all, the economy needs to add 100,000 jobs a month or so just to keep up with population growth. Today, just 64.5% of the people in the labor force — a mere 58.3% of the total population — actually have a job. Both of those figures represent a new all-time low. And that now-famous U6 measure — the number of people who want more work than they have — is still insanely high at 17%.

Overall, it’s the same story we’ve been seeing for a while: good news for the employed, bad news for the unemployed. That’s what happens when you’re reliant on monetary policy rather than fiscal policy to boost the economy.

Comments
7 comments so far

Good post, but I wonder about the last line:

“That’s what happens when you’re reliant on monetary policy rather than fiscal policy to boost the economy.”

Where do you come up with that, because I see no evidence of that.

In the monetization in Weimar Germany during the crackup boom, unemployment got down to 1% or less in 1922.
http://cij.inspiriting.com/?p=846

The Great D. featured substantial fiscal effort and outright contraction on the monetary side. It was great for the employed and horrible for the unemployed.

Do you have facts to back up this claim? I know you hate it when reporters make statements without factual support.

Posted by DanHess | Report as abusive

What do you mean by “fiscal policy”? Do you mean deficit spending to distribute wealth and boost consumption? Isn’t that more or less what we are doing?

Posted by TFF | Report as abusive

A couple of minor corrections. You wrote, “just 64.5% of the people in the labor force — a mere 58.3% of the total population — actually have a job. Both of those figures represent a new all-time low.” The 64.5 number is not the % of people in the labor force that have a job — that would be 90.4%. And those numbers are not all time lows. Employment/pop is indeed now 58.3%, but it was almost always below that number until 1977. There were trends in male and female labor force particip. going in opposite directions, and increasing female lfp dominated decreasing male. Where the future lies we do not know, or at least I do not know.

Posted by employment | Report as abusive

Apologies, Felix, but you are going to have to start over on this one…

The Civilian noninstitutional population is given at 238.5M, including octogenarians and toddlers. Thus it shouldn’t be surprising that 85M are not in the labor force. These are mostly children, students, SAHM (and SAHD), and retirees. Just 6M from this category actually WANT a job.

The unemployment rate is 9.0% of the labor force or (including those not in the labor force who want a job) 8.3% of the population. Moreover, while the “seasonally adjusted” figures look bad, the non-seasonally-adjusted figures are improving (holiday hiring?). For some purposes, the non-seasonally-adjusted figures might be better?

Posted by TFF | Report as abusive

@DanHess, are you saying you see no evidence of the country being reliant on monetary policy? That’s the only active measure being taken, and it isn’t working. At all.

Yes, the government had an enormous stimulus package to stop the free fall it was in. But that was 18 months ago, give or take a month or two, and it worked to some extent. There is no chance of the government doing anything like that now, so the institutions not subject to congressional approval are trying to revive the economy by pouring money into it. This is futile, as there is already enough money in the economy, it’s just that the people who have it (or control it, as it’s not the corporate execs money, it’s their shareholders, and they get to hold onto it or spend it) are choosing not to use it.

This monetary policy that is being called quantitative easing is just another name for supply side economics, which was a giant failure 30 years ago and is still failing today. People won’t invest money just because they have it, nor will they invest tax savings just because they aren’t paying it to the government. What they will do is hoard it, and that is what is going on.

I wasn’t around back in the 20s, but I’m guessing the german currency wasn’t the world’s reserve currency, and that the rest of the world didn’t have trillions of dollars of its wealth tied up in it. And I’m also guessing that each infusion of money into the German economy wasn’t met with countermeasures from every other major economic power that prevented its devaluation. So I’m thinking it’s not fair of you to compare the current situation with Germany almost 90 years ago.

Felix is right in pointing out that monetary policy cannot be used to cause large corrections in the economy (and nobody seems to be happy with small corrections in the economy). That can only happen by policies that actually influence investment and spending, and right now monetary policy is having zero influence in those areas.

Posted by OnTheTimes | Report as abusive

Good points, OnTheTimes. If banks already have substantial “excess reserves”, then what good will it do to increase those reserves? (And that, of course, is the point of entry for Fed stimulus.)

Only difference it will make is if the banks know that the “excess” reserves are actually needed to cover unrecognized losses on their books.

Posted by TFF | Report as abusive

Another thought…

The unemployment rate has been “stubbornly high”, partly because many employers reduced hours instead of laying off employees. The U6 captures some of this, but I’m not sure it captures all. (For example it might leave out employees who are given “half day” pay on Fridays.)

The 1.8% increase in hours worked is truly an increase in employment. And once the workforce is back to full-time capacity, employers will necessarily increase hiring. I know that my own business has gone from 2/3 capacity last year to full capacity this year. For the first time in three years I am turning away prospective clients (hard to expand capacity in a personal-services business).

So while an increase in hours worked doesn’t immediately help the unemployed, it does suggest the possibility of new hiring in the near future.

Posted by TFF | Report as abusive
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