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Dirk van Dijk, CFA

Final Words on the Jobs Report

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The percentage of people looking for a job increased for the second month in a row. The only things keeping today's BLS non-farm payroll report this morning from being even better was a deterioration in the duration of unemployment statistics, and an increase in the number of people who are working part time who really want a full time job.

Without a doubt those are serious flaws. Still, relative to what we saw in August (especially before the revisions) and indeed most of the previous four reports (July was OK, but April and May were also very weak) this was a very good performance.

Year over year, the drop in the unemployment rate from 9.6% to 9.1% looks like progress, but it is partly an illusion. It is mostly due to a fall in the participation rate, but that has bounced for two straight months now. Anyone who gets excited about the drop in the unemployment rate that comes due to a falling participation rate is deceiving themselves.

The rising participation rate this month is a good sign for the economy, but the absolute level is still just awful. After all, the July level was a 28-year low, so it is not something to get very enthusiastic about. Similarly, the percentage of people actually working ticked up for the second month in a row, but off of the worst showing since 1983.

The drop in government jobs was larger than the consensus expected, but the upward revisions to August offset that. Add those to the drop this month and things were pretty much as expected. The household survey was much more upbeat, and pointed to a gain of 331,000 jobs for the month.

The public sector has been a significant drag on employment growth, and plays a big role in why overall job growth has been so weak. Normally government employment rises fairly robustly early in recoveries. So it's not just the government jobs lost, but also the jobs that are normally created that are missing.

All things considered, it is better to see the job creation in the private sector, but those public sector jobs are held by real people. The checkout clerk at Wal-Mart ([url=http://www.zacks.com/stock/quote/wmt]WMT[/url]) does not ask if you are in the public or private sector.

The damage done by this downturn was far deeper and more extensive than in those downturns. The graph below (from http://www.calculatedriskblog.com/)  shows just how deep and nasty this downturn was relative to all the post war recessions that came before it. By this long after the previous peak in employment, in every case but one (2001) the economy had fully recovered and had more total jobs than when the recession started.

While clearly we have started the upturn, with or without census hiring, it is going to take a long, long time before we surpass the total number of jobs the economy (both private and government) had back in January of 2008 (137.996 million). We are still 6.662 million lower than that level. At the average pace of the last three months, it would take 70 more months, or almost six years to get back there, and the population will continue to grow over that timeframe.

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