Tea Leaf: Employment report is same old story

Published: Tuesday, Jan. 11 2011 3:00 p.m. MST

U.S. Unemployment Rate

Thredgold Economic Associates

The story is getting old.

The latest employment report was a downer, especially when compared to the garden variety of data supporting the notion that the U.S. economy is gaining strength.

Stronger U.S. job gains are coming soon!

The U.S. economy added a disappointing 103,000 net new jobs during December, roughly 60,000 less than expected. Better news saw previously reported employment gains for October and November revised higher by 70,000 jobs.

That 9.4 percent rate

Noteworthy in the report was the sharp decline in the nation's unemployment rate from 9.8 percent in November to 9.4 percent in December, the lowest level in 19 months, and the largest monthly decline in more than 12 years. Economists had expected a much smaller decline.

The nation's unemployment (or jobless) rate can fall sharply for two fundamental reasons. The first would be a strong surge in job creation (the good reason). The second would be a sharp decline in the estimated labor force (the bad reason).

In reality, it was a combination of the two

Survey times two

This part requires some explanation, so bear with me.

The employment data noted here comes from two separate and distinct surveys. The 103,000 estimated net gain in employment comes from the "establishment" survey. The U.S. Labor Department's Bureau of Labor Statistics (BLS) surveys roughly 140,000 businesses and government agencies each month, covering roughly 400,000 work locations.

The nation's unemployment rate results from a smaller survey (also by BLS) of roughly 60,000 households each month. The BLS then estimates the size of the labor force, the number of employed people and the resulting number of unemployed people. Note that you have to be seeking employment to be counted as unemployed.

The latest "household" survey indicated a 260,000 contraction in the estimated labor force, a sign that more people had become discouraged about finding a job and had stopped looking … thereby no longer counted as unemployed. At the same time, the household survey noted a rise of 297,000 people who were now employed. These two figures led to a 557,000 decline in the number of people counted as unemployed, from 15,041,000 to 14,485,000, resulting in the decline from a 9.8 percent rate to 9.4 percent.

The household measure of employment (the 297,000 estimated gain) is considered less reliable and more volatile than the establishment estimate of 103,000 jobs gained. However, some economists would suggest that the household survey is better at measuring new-business startups (and failures) and small-business job gains (and losses) just after these events occur than the establishment survey. Over time, the two surveys will move very close to reporting similar data.

Where the jobs were

The private-sector service-providing area added 115,000 net new jobs during December. The leisure and hospitality sector added an estimated 47,000 jobs during the month, while education and health services added 44,000 jobs. Retail trade added 12,000 positions, while professional and business services added 7,000 jobs.

The nation's government employment sector continues to hemorrhage, with an estimated net loss of 10,000 jobs. The federal government (no surprise here) added another 10,000 employees, while local governments cut an estimated 20,000 jobs. Additional job losses at the state and local level are expected during 2011 as budget pressures remain intense.

The nation's goods-production sector suffered an estimated net loss of 2,000 jobs in December. The construction sector lost another 16,000 jobs, while manufacturing added 10,000 jobs. Mining and logging added 4,000 jobs.

Other key data

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