December 2010 Employment Report

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The U.S. economy added 103,000 nonfarm jobs in December, and the unemployment rate fell by 0.4 percentage point to 9.4 percent. Other positive elements from the employment report include an uptick (557,000) in the number of full-time employees, and a smaller decline (29,000) in the number of persons working part time for economic reasons.
 

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Payrolls expanded by 1.11 million jobs (1.33 million in the private sector) during 2010, but that came after the nation lost more than 8 million jobs in 2008 and 2009. As we have indicated repeatedly, at least 100,000 jobs need to be created each month just to keep up with population growth, so job creation ostensibly reached that milestone in December. Since nonfarm employment bottomed out last December, job creation has averaged about 92,500 per month. Thus, the pace of hiring will have to increase dramatically to not only keep up with new workers entering the work force for the first time, but also to once again make those 7+ million still-displaced workers productive.
 

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Although we do not want to dismiss good news if it is legitimate, we need to point out that much of the improvement in the December employment picture was the result of seasonal adjustments that “swamped” the original Bureau of Labor Statistics (BLS) estimates. Other disconcerting details from the report include another 0.2 percentage point drop in the civilian labor participation rate (to 64.3 percent, the lowest level since April 1984) and a stagnant employment-to-population ratio. Also, although the number of unemployed person decreased by 556,000 (the main reason why the unemployment rate fell), over 250,000 of that number involved people who gave up looking for work.

In the words of one analyst, “The U.S. unemployment picture [seems] unusually confusing these days.” Two conflicting reports added to that confusion on January 6: First, ADP reported an increase of 297,000 in private-sector employment (which, like the BLS estimates, may have been largely driven by seasonal adjustment). That was followed by a Gallup poll showing that both the unemployment rate and the number of part-time workers increased in December.

Dennis Jacobe, Gallup’s chief economist, attempted to explain the discrepancies as follows: “Because the Gallup unemployment measure is not seasonally adjusted, it tends to more accurately reflect what is actually taking place in the U.S. job market -- and may not agree with the government's estimate that is seasonally adjusted. Further, Gallup's data tend to be more up-to-date than the government's because Gallup polls on the unemployment situation continuously. Combined, seasonal adjustments and timing differences likely explain much of the disparity between Gallup's measures of underemployment and unemployment, compared with those reported by others.”

Regardless whose data may be the most accurate, all of the surveys agree that nearly one in five Americans continue to be unemployed or employed part-time looking for full-time work.