Headline numbers from the November employment report were a real disappointment. Nonfarm payrolls rose by only 39,000 and the unemployment rate increased to 9.8%. Other statistics from the release were just as dismal: the average workweek was unchanged, the share of long-term unemployed grew, and average hourly earnings increased by just a penny.
And, frankly, this report left egg on my face. As part of an economist panel at the National Auto Auction Association convention in September, I predicted significant employment gains in the months ahead. I quickly noted, however, that I had no quantitative evidence to support that forecast. It was strictly a gut feeling. With a payroll gain of 151,000 in October (since revised up to 172,000) and healthy retail sales in November, I thought my instincts were being proved right. I fully expected today’s employment report to be an upside surprise; not a downbeat disappointment.
When numbers fail to come in as expected (or desired), there is a natural tendency to question the reliability of the data. I hate to fall back to that excuse, but it is true that the payroll numbers contain a large measurement error – a measurement error that is compounded by the seasonal adjustment, which is large this time of year. In addition, November’s small employment gain was not consistent with other measures of the economy – most notably, retail sales, which, by all accounts, were very strong, both pre- and post-Thanksgiving. So, could today’s employment report be revised up materially? Yes, but we will still be left with a less-than-satisfying gain.
Where to now? Throughout this cycle (both before the recession and coming out of it), I have been more pessimistic than my colleagues. But, when it comes to the short-term outlook for employment, I still see (maybe on blind faith) some significant gains ahead.
Here’s an interesting stat from today’s report – the unemployment rate for those with a college degree hit 5.1%; that's the highest level in this cycle. This can be consider either a bad sign (the laying off of qualified workers) or a good sign (the ranks of the unemployed now contain more people with greater flexibility to move between jobs). I’ll take the latter. Today’s employment situation is bad; but it is not without hope.
This does not, however, change my “upward slanted W” for the recovery. Given the magnitude of the job losses during the downturn, I still expect the U.S. will enter another recession before we make it back to the previous peak in employment.