Unemployment rate back up to 9.8%, likely from more people leaving the sidelines to participate in the labor force

The unemployment rate edged up to 9.8% in November, and nonfarm payroll employment was little changed (+39K), the US BLS reported today. Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November.

Today's employment report stands out-unfortunately as a stray from the other good news this week. Payroll growth was unexpectedly soft and the unemployment rate rose.

Weakness in the latest month was in goods-producing and government sector jobs. Good-producing employment declined 15K, following a 3K rise in October. In the latest month, manufacturing fell 13K; construction slipped 5K.  Private service-providing gained 65K after a 157K increase in October.  Government jobs fell 11K. The decrease reflects continued budget cutting at the local level.

In the household survey, the 9.8% rise reflected a 276K drop in household employment, a 276K jump in the unemployed, and a 103K increase in the civilian labor force.

The latest employment situation report clearly is disappointing to the markets. However, it confusing as it is in stark contrast with the recent string of good economic news. There are several theories presented. 
  1. Businesses are still reluctant to hire despite improved demand.
  2. The ADP report earlier this week showed minor strength in hiring by small businesses. This sector is a weak point in the government survey for payrolls and could improve with revisions. In fact, the BLS is starting to update its establishment birth/death factors on a quarterly basis for January 2011 data for release in February.
  3. There could be seasonal adjustment problems with hiring around the holidays. Traders are wondering wether this jobs report is an aberration from other economic news or whether the other economic news was only minor bounce.
  4. As jobs get more plentiful, more people leave the sidelines and throw their hat in the employment ring.  That can lead to an increase in the bogus unemployment rate that the government reports because more people are entering the labor force. 

I tend to view this latest 9.8% unemployment rate as an increase in people leaving the sidelines to actively participate in the labor force.  As such, it is probably more of a neutral sign. As actual employment numbers stayed flat, but the rate went up, it seems as the unemployment rate is increasing from an increase in the labor force rather than an increase in people that don't have jobs.

Source Bloomberg

Source Bloomberg

BLS release


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