Unemployment Falls to 10% But Obscures Negative Trends

Published on December 4, 2009

The Bureau of Labor Statistics (BLS) released its November report on employment this morning which shows that unemployment dropped to 10.0% from 10.2% in October.  While any drop in the “headline” unemployment rate is likely to be greeted with celebration (or at least relief), today’s report actually highlights several negative trends:

  • Non-farm payroll employment fell by 11,000 jobs in November which is an improvement compared to the average of 135,000 job losses over the prior three month period.  However, this seemingly modest number of net jobs lost obscures the fact that job losses were concentrated in construction, manufacturing, and information technology while temporary employment accounted for much of the gain (in addition to a smaller gain in health care employment).  Apparently, many permanent jobs were lost while temporary jobs partially replaced them – not a trend likely to add to consumer confidence.
  • The civilian labor force shrunk by 98,000 in November.  The “not in the labor force” group rose by 291,000 in November.  To the extent that not all of these individuals voluntarily left the labor force during the month, it is obvious that a large number of “discouraged workers” are included in this statistic.  Of the total number of people not in the labor force, the BLS estimates that approximately 5.6 million want a job but are not included in the official unemployment statistic because they have not actively seeking a job.
  • Broader measures of unemployment, such as U-6 continue to show very high levels of labor force under-utilization.  U-6, which includes marginally attached workers as well as those employed part time due to difficulty finding full time employment, fell to a seasonally adjusted 17.2% in November from 17.5% in October.

Due to natural growth in the labor force associated with a rising population, the United States economy must add a significant number of new jobs each month simply to keep the long term unemployment rate constantPresident Obama has stated that the United States needs to create 150,000 jobs per month just to keep pace with population growth and keep the unemployment rate constant:

“I think we’ll be adding jobs, but you need 150,000 additional jobs each month just to keep pace with a growing population,” the president said. “So if we’re only adding 50,000 jobs, that’s a great reversal from losing 700,000 jobs [a month] early this year — but, you know, it means that we’ve still got a ways to go.”

While today’s jobs report is positive compared to the dismal situation we discussed in early October, it is premature to think that unemployment is on a sustainable downward trajectory.  Combined with the fact that many of the jobs that are being created are temporary while job losses continue to be from sectors such as manufacturing and construction that traditionally offered better pay seems to call into question theories of green shoots emerging in the economic outlook for workers.  The headline number might seem positive, but consumers are still likely to spend with restraint during the holiday season.

Unemployment Falls to 10% But Obscures Negative Trends
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