Two-Headed Labor Market Presents Problem for Bond Investors
Happy Friday.
The Employment Situation Report came this morning. And it went.......
The highly-anticipated official monthly read on the health of the labor market was seen as sorta "EHH". Jobs were created. But not enough to excite economists OR confirm expectations for a faster recovery.
We didn't learn much. Here is a comment from the release...
THE EMPLOYMENT SITUATION – DECEMBER 2010
The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.
The 0.4% dip in the unemployment rate will be a headline grabber when your nightly news airs this evening. I'm always curious to hear the Brian Williams perspective on the Employment Situation. He talks to a lot of Americans. Unfortunately tonight's TV explanation is not likely to bear the asterisk* it deserves.
Here are the proper definitions of the two surveys that make up the Employment Situation Report as well as some comments.
Household survey. The sample is selected to reflect the entire civilian noninstitutional population. Based on responses to a series of questions on work and job search activities, each person 16 years and over in a sample household is classified as employed, unemployed, or not in the labor force.
People are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm. People are also counted as employed if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons.
The civilian labor force is the sum of employed and unemployed persons. Those not classified as employed or unemployed are not in the labor force. The unemployment rate is the number unemployed as a percent of the labor force. The labor force participation rate is the labor force as a percent of the population, and the employment-population ratio is the employed as a percent of the population. Additional information about the household survey can be found at www.bls.gov/cps/documentation.htm
Plain and Simple: The declining labor participation rate can be cited as the culprit behind a much needed nightly news UNR* asterisk..
The number of employed persons did rise by 297,000 in December (see highlight above), but the number of unemployed persons fell by a whopping 556,000! Wait. What?? 556,000 people said they were no longer unemployed, but the the number of "employed" rose by only 297,000? Where did the remaining 259,000 persons go? They exited the labor force! That's where! They raised their hands in the air and said "I give up!" (overly dramatic).
One more time..297,000 of the 556,000 people that said they were unemployed in November, said they were employed in December. The remaining 259,000 people left the labor force plus another 175,000 folks left the labor force, which shrunk by a total of 434,000 Americans. Phew. That hurt my brain. Sorta explains why Brian Williams generally doesn't try to explain the * to America.
More from the Release...
The number of unemployed persons decreased by 556,000 to 14.5 million in December, and the unemployment rate dropped to 9.4 percent.
In December, the number of job losers and persons who completed temporary jobs dropped by 548,000 to 8.9 million.
The civilian labor force participation rate edged down in December to 64.3 percent, and the employment-population ratio was essentially unchanged at 58.3 percent. (See table A-1.)
The number of persons employed part time for economic reasons was essentially unchanged in December at 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)
And the ugliest stat of them all...the folks we're leaving behind.
The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 6.4 million and accounted for 44.3 percent of the unemployed. (See tables A-11 and A-12.)
Now for the other side of the story...NON FARM PAYROLLS
Establishment survey. The sample establishments are drawn from private nonfarm businesses such as factories, offices, and stores, as well as from federal, state, and local government entities. Employees on nonfarm payrolls are those who received pay for any part of the reference pay period, including persons on paid leave. Persons are counted in each job they hold. Hours and earnings data are produced for the private sector for all employees and for production and nonsupervisory employees. Production and nonsupervisory employees are defined as production and related employees in manufacturing and mining and logging, construction workers in construction, and nonsupervisory employees in private service-providing industries.
Bond vigilantes love talking about the little engine that could in the Establishment Survey...growth in private payrolls. See what I mean by "consistent improvement". That's a nice run for private industry. We still have a long way to go, but the trend is currently our friend!
Clearly the Household Survey paints a much different picture of reality than the Establishment Survey. Wall Street tends to focus on the growth implied by the Establishment Survey. Main Street experiences the reality of the Household Survey. Does it feel like the Unemployment Rate fell to its lowest level in 19 months to you? I can't tell the difference, but Wall Street needs to pick a perspective soon.
If you floated through jobs data, we were encouraged by today's price action. This is a positive but there is still much work to be done.