Friday, December 02, 2005

November Employment

The top line numbers for this morning's November employment report are net 215,000 payroll jobs added and a reported unemployment rate that stayed at 5.0 percent. On the latter, only some fortunate rounding prevented the number from ticking up by a tenth (4.95 to 5.04 percent). On the former, the BLS has resumed its usual methods, with no accommodation for lingering effects of Hurricane Katrina. Over the past 12 months, the economy has added about 2 million payroll jobs.

The 215,000 number doesn't excite me this month, because the private workweek fell by 0.1 hour. As I've noted in past discussions, that reduction in the workweek offsets the added labor input of about 300,000 new workers (134 million total x 80% in private production or non-supervisory jobs x 0.1 hour reduction / 33.8 hours on average). So overall, the economy didn't appear to increase its demand for labor input to production in November. The reduction in the workweek changed a small increase in hourly wages to a small decrease in average weekly earnings, even measured in nominal rather than real terms.

The most interesting feature of this month's report is the information from some special questions in the household survey on persons displaced by Hurricane Katrina. There are nearly 900,000 persons 16 and over evacuated for Katrina, split evenly between those now in the same residence as in August and those in a different residence than in August. The employment-to-population ratios are 46.1 and 41.6 percent for the two groups, respectively, compared to a national figure (not seasonally adjusted) of 62.9 percent. If the national figure is a reasonable proxy for what the Gulf Coast might be experiencing absent the hurricanes, that suggest continued unused labor capacity of about 30 percent (1 - ((46.1+41.6)/2)/62.9) among those people evacuated.

Blogsearch Technorati


Richard Schwartz said...

I'm glad to see that you're digging underneath the employment numbers and exposing the impact of under-employement. Tracking average weekly earnings is clearly a more useful measure of economic health than tracking employment. We had a brief exchange about this a year ago Thanks, and keep it up!


Dean Baker said...

I never thought I would be the big optimist on the state of the labor market (EPOPs are still down about 1.7 pp from pre-recession levels), but I think Andrew is really missing the story on this one.

Hours are very important, but the measurement is extremely erratic. For example, in June of '04 the average workweek reportedly fell by 0.2 hours. It rose by 0.1 hour in July and was back up to its May level by September. My guess is that average hours did not really fall that much in June, rather the change was driven by measurement error. When hours and employment go in the opposite directions (as was reportedly the case in November), I look to measurement error as the first line of explanation.

To me, the story in this report is accelerated wage growth. This was not immediately apparent, because much of the action was an upward revision of 0.2 cents in the average hourly wage from October, not a big gain for November. But, if we take 3-month averages to minimize the impact of error in the data, we get that hourly wages have been growing at an annual rate of 3.5 percent over the last quarter. This compares to a 2.5 percent rate in the first half of the year.

This is good news in my book. Whether it continues is another story (anyone heard of the housing bubble?), but for now, the labor market appears to be on a positive path.

Andrew Samwick said...

Your guess about hours turns out to be generally correct--a quick look at the time series since 1990 suggests negative autocorrelation, with about 80% of a change being undone within 6 months. The autocorrelation for growth in employment shows positive autocorrelation of about the same magnitude. So I take your point about what to emphasize in the monthly update.

I would qualify your point about wage growth somewhat. Inflation accelerated over the time periods in question, eroding perhaps half of that difference in nominal hourly wage growth.

Anonymous said...

If you smooth the hours worked numbers by using a 3 month moving average it turns into a very smooth data series. Moreover, if you look at the year-over-year change and the three month change of hours worked over the pst year it clearly appears to have peaked.

On the other hand average hourly earnings is moving up very nicely.
Inflation expectations plays a significant role in wage setting. So the comments about infaltion works both ways -- dampening demand while pushing wages gains up
at the same time.

Anonymous said...

The labor market is squishy and soft.

That said, at this point there is a lot of room for improvement without hitting all-time highs in the labor market. So this has to be encouraging - hope.

Also, is it necessary to go through peaks and valleys in labor markets? By necessary, I mean sluggish labor markets may help to boost productivity growth over the long term.

Mark said...
This comment has been removed by the author.