View From Down Under

Employment figures released Friday were a pleasant surprise.  The unemployment rate declined slightly from 10.2% to 10.0%.  Seasonally adjusted job losses for November were 11,000 – this is a drop of 0.0084% of total employed and therefore the Department of Labor characterised employment as “essentially unchanged”.  The consensus forecast of economists for November was a loss of 125,000 jobs, so the flat result was a big surprise.

Hours worked also increased slightly, from 33.0 in October to 33.2 in November.  This is a necessary precursor to stronger hiring, as businesses will typically use any spare capacity from their existing employees before adding new ones.  However, hours worked has been fairly stable for some months, and is still a fair way below the average of 33.8 for the three years prior to the recession.

Many of the jobs created were temporary in nature.  This is not necessarily a bad thing, as temporary hiring typically precedes permanent hiring in a recovery.  Businesses are usually reluctant to commit to permanent hires until they are confident the requirement is permanent.

In other encouraging news, job losses from September and October were both positively revised.  The September reported loss of 219,000 jobs was revised to 139,000.  The October reported loss of 190,000 was revised down to 111,000.  In the past, the direction of these revisions has served as a pretty good leading indicator.

Of course, this report is a snapshot and subject to normal margins of error.  The figures are preliminary and likely to be revised in the future.  The reality is there are 7 million more Americans unemployed today than two years ago.  The US has serious issues with long term unemployed and discouraged workers.  For the unemployed, the recession is not over.

But the unemployment figures have some of the classic signs of end of recession data.  Before the unemployment rate can drop in a sustained manner, several things need to happen:

• Job losses must stop.  While it’s not entirely clear that losses have stopped for good, it is absolutely clear that the rate of job loss has slowed, and slowed dramatically.
• Hours worked must increase, absorbing excess labor capacity.  Again, a ways to go, but the signs are now encouraging.
• Temporary hiring needs to pick up.  As business activity requires more employees, but managers are still stuck with either hiring freezes or uncertainty, the typical path is to hire temp workers first, then permanent.

The best news from the Department of Labor yesterday is that these indicators are all apparently moving in the right direction.