Making Sense of the Mixed-Up Unemployment Report

This will be of no comfort to the combined 3,000 workers set to be laid off from UPS (UPS) and Lockheed Martin (LMT), or the 85,000 folks who lost their jobs in December, or the record 40% of Americans out of work for more than 27 weeks, but Friday's unemployment report wasn't all bad.Really. If anything, it held a little something for bulls and bears alike. Just witness the market's muted and mixed reaction: The Dow Jones Industrial Average ($INDU) initially fell on the news but closed with a slight gain. The Nasdaq Composite ($COMPX) turned positive at 10 a.m. and never looked back. And the S&P 500 ($INX) traded fractionally lower most of the day but finished in the green.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%Yes, the headline number was a major disappointment. Economists polled by Bloomberg News expected the economy to add 10,000 jobs last month -- not shed 85,000. Indeed, the Labor Department report was supposed to show that the economy actually added jobs for the first time since December 2007.

And weirdly, it did, but it turns out the losing streak was snapped back in November; we just didn't know it at the time. How's that? The November number was revised Friday to a gain of 4,000 jobs from a previously reported 11,000 jobs lost.

"The Trends Aren't Mixed at All"

That revision helped keep the unemployment rate steady at 10% instead of climbing to 10.1% as economists had forecast -- and that is significant, says Robert Brusca, chief economist at Fact & Opinion Economics. "It was a mixed report, but the trends aren't mixed at all," he says.

For one thing, it appears that unemployment has peaked. True, joblessness is expected to stay at painfully high levels for a long time, but at least it's headed in the right directio, Brusca says. Economists, on average, see the rate easing to a rotten-but-still-better 9.6% at this time next year, according to The Wall Street Journal Economic Forecasting Survey.

Also, average hourly earnings increased, the private sector added jobs for the second month in a row and temporary jobs, which usually signal a new hiring phase, increased by 47,000. And don't forget that December's unusually lousy weather was responsible for at least some of the job losses in construction.

In other words, maybe "less bad" really is "good" this time around. "The trend job decline has fallen sharply," Nigel Gault, chief U.S. economist at IHS Global Insight, wrote Friday. "We lost an average 199,000 jobs per month in the third quarter; we lost only 69,000 jobs per month in the fourth. It is probable that we will see actual job gains, on average, during the first quarter."

Job Losses from Now On Are "Irrelevant"

Hooray for that. And though it's frustrating to have gained jobs in November only to lose them again last month, unfortunately, that's pretty typical. After all, the unemployment rate rarely goes down quickly in a recovery, says Brusca. "It took us two years to lose these jobs. It will take at least that long to get them back."

Dan Greenhaus, chief economic strategist at Miller Tabak, offers a similar assessment. "That we took a step back in employment in December should not be a shock as this tends to happen," Greenhaus told clients Friday. "We are almost assuredly at the very end of the current cycle of firing, and we repeat our belief that the number of people who lose their jobs from here on out is irrelevant. With over 8 million jobs shed in this recession, another 85,000 or 25,000 has no bearing."

Those sound like cold, harsh words, but Greenhaus makes an important point. "The only thing that matters," he says, "is how quickly these people find a new job."
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