November 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 146,000 in November. The unemployment rate edged down to 7.7 percent; the decrease was due more to the 350,000 persons who left the workforce than the number of new jobs. With the exception of Construction and Manufacturing, all private supersectors reported some growth in November; government employment, on the other hand, contracted at the federal and local levels. Revisions to prior months’ employment estimates were quite substantial: The change in total non-farm payroll employment for September was revised from +148,000 to +132,000, and the change for October was revised from +171,000 to +138,000.
 

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The number of people not in the labor force jumped by 542,000 (to 88.9 million) in November, just 38,000 short of August’s all-time high; as mentioned above 350,000 left the workforce between October and November, while the other 192,000 came from population growth. The ratio of employed persons to the entire population was essentially unchanged, at its highest value since August 2009.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) dropped by 0.2 percentage point, to 63.6 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees rose to 1.28 percent. With the price index for urban consumers rising at a 2.2 percent annual pace, that means wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

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Full-time employment added another 198,000 jobs while part-time employees fell by 168,000.
 

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We like to cross-check the validity of data whenever alternative sources are available. The U.S. Treasury’s income and withholding tax data is one source we use to sanity test the BLS’s non-farm employment report. In principle, revenue from withholding taxes should rise when more people are working and fall when job losses occur. As the figure above shows, the revenue data are very “noisy;” even year-over-year percentage changes are quite volatile, thus we show a three-month moving average in the year-over-year line to better identify ongoing trends. The drop-off in November revenue appears to raise doubts about the BLS’s claim of job growth.
 

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Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 4.17 million fewer jobs than at the January 2008 peak.
 

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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At November’s rate of job gains, it would take until April 2015 to retake January 2008’s employment level (i.e., without adjusting for population growth).


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.