103,000 & 9.4%

The Lehmann Letter (SM)

This morning the Bureau of Labor Statistics reported that December nonfarm payroll employment grew by 103,000:

http://stats.bls.gov/news.release/pdf/empsit.pdf

That's disappointing because monthly job growth of 100,000 is insufficient to restore full employment in the long run. Population growth and improved productivity (greater output per worker enables employers to shed employees) require 100,000 new jobs per month merely to provide employment for new job seekers. 100,000 can't also absorb the currently unemployed.

Paradoxically the December unemployment rate did drop sharply from 9.8% to 9.4%. But that rate is determined by responses to a survey that asks, "Are you currently employed and, if not, are you looking for work?" If the number seeking employment falls significantly (because discouraged responders leave the labor force, return to school and so forth) while the number of employed grows modestly, the survey response can indicate a sharp drop in the unemployment rate despite employment's meager improvement.

That's why the economy requires monthly gains of over 200,000 new jobs to generate sustained employment improvement, i.e. the return of full employment at a rate of 5% or less.

Job Growth

(Click on chart to enlarge.)



Recessions shaded

The chart reveals great improvement over the depths of the recession when the economy lost more than 500,000 jobs monthly. The chart also shows that job growth briefly popped up to 400,000 early in the recovery when some employers realized that they had laid off too many employees.

But now the tough work has begun: Consistently adding more jobs, month after month, in sufficient numbers to restore full employment. The unemployment rate can wobble month-to-month. We hope to cut it in half.

(PS - The report also showed that the workweek stopped growing lately. Let's hope that's a momentary pause. Employers generally ask their employees to work longer hours before they hire new hands. That's why a longer workweek provides an omen of future employment. A stagnant workweek does not.)

(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2011 Michael B. Lehmann