- Fri, Nov 4, 2011
The Submariner – Deep Data Dive: Jobs Report
As investment managers it is our job to thoroughly examine every economic and financial market data point we ascribe as significant – be it the obscure or the obvious. Indeed, there is no shortage of real-time data flow, and today is no exception. Setting aside the European situation for a moment, this morning the U.S. economic landscape released one of its more market-moving statistics, the government’s Employment Situation report.
Overall the report was in-line with sluggish economic growth. The economy added 80k jobs, with 104k coming from the private sector [-24k in government payrolls]. Average hours worked remained flat [34.3], but this isn’t a surprise given that it’s at the high end of its historical range. It demonstrates that companies are still concentrating on squeezing more out of their current workforce, and less to ramp hiring.
On the other hand, the manufacturing work week rose, and 5k jobs were added to factory payrolls. This is positive because factory output has been a key engine for economic growth since the recovery began in mid-2009. In addition, some of the recent concerns over the U.S. macroeconomic landscape have been centered on a cooling manufacturing sector. Thus, the increase in hours worked, payrolls, and taken in concert with recent ISM, PMI and durable goods reports [which showed increases in new orders and unfilled orders] supports this labor data and its positive trajectory.
Perhaps the most encouraging pieces of the report: 2-month upward revisions [Aug & Sep] by 102k suggesting that underlying economic growth for those two months was a bit stronger than originally thought [as evidenced by advanced Q3 GDP]; under-employment dropped from 16.5% to 16.2%; long-term unemployment fell [good direction given the structural labor issues]; wages rose slightly; and the headline unemployment rate dropped to 9% [from 9.1%] surprising most economists and analysts.
For myself, I’m not surprised the rate dropped by a basis point. What I am surprised about is how it dropped. The labor force expanded in October — the number of people working full-time plus those actively seeking employment — yet the rate still fell. This is likely due to the backward positive revisions. Regardless of the statistical reasoning, it’s an encouraging sign. So often during the course of this recovery the rate drop was due to a shrinking of the labor participation rate, that is, discouraged people who stopped looking for work in the past four weeks and were no longer counted in the labor force by the government. This occurrence does not represent a “clean” drop in the unemployment rate; the former does.
Finally, given the recent independent household surveys [showing higher job readings] coupled with the reason for the upward revisions, we are optimistic that this month’s October payroll may be revised up in November.
Although it’s nice continuing down the path of net job gains, it’s important to understand that the pace needs to accelerate if we are to see a meaningful drop in the unemployment rate.
To wit, in simply keeping up with new labor force participants the economy must create about 125k jobs a month. In order to bring down the unemployment rate, say, by 0.5% in time for next year’s election it will take roughly 155,000 net adds a month.
Jason Ware
Market Strategist, Analyst
(801) 487-3700; (877) 487-6200
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