December Employment Report Shows Americans in Despair
The data is in - regarding the employment situation for December 2010, and while the headline news appeared solidly positive, like the townsfolk listening to the boy who cried wolf, the market would not buy in this time. In fact, after closer inspection, what became plainly evident was that Americans were in despair this past December.
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December Employment Report Shows Americans in Despair
Friday's Employment Situation Report issued by the Department of Labor (DOL) showed the unemployment rate four-tenths of a point lower in December. According to the DOL, unemployment dropped to 9.4% of the American workforce, down from 9.8% in November and significantly shorter than the 9.7% rate forecast by economists surveyed by Bloomberg. Despite the apparent good news, the Dow Jones Industrial Average is off a half point as of the hour of publishing. The S&P 500 Index and Nasdaq Composite are likewise dipping. So what gives then?As usual, the devil is in the details of the Employment Situation Report. Because of the season of survey, when activity of all sorts lulls to a sled's pace in slush, questions abound about the reliability of December data. The DOL report offers data from two surveys, the Household Survey and the Establishment Survey. It's the Household Survey that measures the unemployment rate, and it's the one most economists are advising people not pay attention to. After years of our musings on the intricacies of this report, it seems the economists' consensus is finally supporting our suspicions.
According to the Household Survey, 556K Americans were erased from the unemployed count in December, a period in which less hiring usually occurs. This led many to suspect that seasonal factors came into play. Perhaps the unemployed also became lackadaisical over the holidays, like everyone else, or fell into despair. After all, a few factors could account for the change. Indeed, the size of the labor force mysteriously shrunk in December too, falling by 260K. Where did all those folks go, if not - God forbid - into the abyss. This seems to say that the missing people not included in the pool of the 297K increase in the number of folks who called themselves employed (vs. -556K in unemployed), just stopped reporting for some sad reason. Indeed, the number of those classified as "discouraged" increased by 36K in December, but that does not capture the whole difference. Thus, you can bet your bottom dollar the unemployment rate should jump back up in January when the missing muddlers resurface.
The immediate reaction of the release was negative, before the majority of naïve investors among us got excited about the unemployment rate and took futures higher for a bit. Here you are finding the wisdom, though, that has carried the market lower since the open, and it's based on the above shared data and the fact that the Establishment Survey reported just a 103K increase in nonfarm payrolls (read jobs), versus economists' expectations for 160K. November's count was revised higher though, to +71K, from +39K (that was good news, but only mildly so). Investors show greater interest in the private sector, versus the overall job count. Private nonfarm payrolls increased by only 113K, again short of the 180K consensus forecast and just a bit above the revised November increase of 79K. Thus, the public sector, which includes states and municipalities currently laying off teachers, firemen and police officers, shed another 10K jobs in December, after losing 8K in November.
Hiring was found in Leisure & Hospitality (+47K), as we guess ski resorts have been snowed over and the Miami playground has officially opened. Education and Health Services added 44K jobs, but we are fairly certain most of those came in health, given education budgets are finding less funding. 15.9K temporary workers were added in places, down from significantly greater increases over the last several months – perhaps tied to seasonal hiring. However, corporate America may be full for now as well, with the economy seemingly hitting a soft spot since the fall. Manufacturing managed to find 10K jobs, with 3.3K of those coming in Motor Vehicle and Parts making.
There was some good news found in the Establishment Survey, in the fact that the bad news was limited in terms of sector damage, with job shedding only found in Construction (-16K) , Information Services (-4K), Government (-10K) and other services (-14K).
The number of part-time workers who would rather be fully employed improved by 29K this month, to 8.931 million. The marginally attached to the workforce count increased by 78K though, to 2.609 million. Thus, the most important factors in an improvement to the Under-Employment Rate were the mysterious reduction in the size of the workforce and the inconsistent drop in the number of unemployed.
These invisible men thus led to this calculation of Under-Employment:
If we add back the 2.609 million (previously 2.531 mln.) displaced workers to the labor market, and include the 8.931 million (previously 8.960 mln. revised) underemployed part-timers in the unemployed count, adjusted unemployment reaches ((14.485M + 2.609M + 8.931M) / (153.690M + 2.609M)) * 100 = 16.65%.
2010 Under-Employment Rate Trend:
December: 16.65%
November: 17.0 %
October: 17.0%
September: 17.1%
August: 16.7%
July: 16.5%
June: 16.5%
May:16.6%
April: 17.1%
March: 16.9%
February: 16.8%
January: 16.4%
Again, before getting excited about the change in rate this month, remember the factors behind it, which included a mysterious disappearance of a significant portion of the unemployed (numerator aid) and labor force reduction (denominator aid). These superficial changes, which are likely to reverse in January, should restore underemployment and unemployment above December's figures.
What we've seen is that when economic growth and a normalization of corporate thinking came about, the labor force increased, so we suspect this decrease is simply the result of a lull in economic activity and a loss of hope among folks on the fringe. Thus, this latest employment report offers not enthusing data, but evidence of Americans in despair in December 2010.
Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.OB), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM).
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