Last week's unemployment report had something for everyone, pessimists and optimists alike. On the whole, it was more disappointing than as reported in the business press headlines. As usual, the press focuses on the payroll survey, and that was up +103,000. It including the return of about 40,000 striking Verizon workers, so it was not as much of an increase as it seemed. It is usually better to ignore the payroll survey, and focus more on the household survey. The latter is used to calculate the unemployment rate, which, by the way, stayed at 9.1%. The household survey was pretty good, with a +428,000 increase in workers. This is more important than the payroll survey because it includes self-employed and freelance workers, but rarely gets the attention it deserves in news reporting. The survey had positive news in that the labor participation rate increased from 64% to 64.2%. This is the percentage of “working age” people who are employed or seeking work. It's usually in the 67-68% range, so it's still well below historical norms. The fact it is rising is considered good news. Then we look behind the curtain of the reports see some things are not what they seemed. The increase in household employment was less than the increase in number of part-time workers. The number of thise workers rose +444,000. In aggregate, the increase in part-time workers was larger than the total increase in job holders. That's not a good sign. A part-time worker, for purposes of unemployment reporting, is an worker with less than 35 hours of weekly employment. Some businesses may be cutting back work hours. Another category is temporary employment, are considered to bullish for employment because the jobs transition to full time once rising business prospects are considered to be permanent. This had a rise of 19,400 workers since last month, a 0.86% increase. Since last year, temporary employment is up +8.4%, a rise of +177,300 workers. The percentage of temporary workers in the overall workforce is actually less than it was when the recession started in December 2007. It was 1.85% then, it's 1.74% now. The number of people no longer in the labor force fell by -224,000, which is good news, but there are almost 1.9 million more people not in the labor force than at this time last year. This understates the unemployment rate, but that's okay, because the BLS has a stat for that. It's called “U-6,” which measures the unemployment rate and discouraged workers and part-time workers who are underemployed. That jumped to 16.5% from 16.2%. Regarding the payroll report, here is a key paragraph from the BLS; I've put a key sentence in bold: "Total nonfarm payroll employment edged up by 103,000 in September. Since April, payroll employment has increased by an average of 72,000 per month, compared with an average of 161,000 for the prior 7 months." Obviously, employment is still slowing. For some perspective about where we've been, and where we are, it's helpful to consider the comparison with the start of the recession in December 2007. The BLS gave a heads-up to all the statisticians who track their estimation methods. Every year, the BLS makes revisions to their data and they preview them for all to see. They announced their preliminary estimates revisions they will in March 2012. They believe that they are undercounting the number of employed workers by 140,000. Using that estimate, these are the employment numbers since the start of the recession: Employed persons:
  • December 2007: 143,324,000
  • September 2011: 140,025,000 current report + 140,000 correction = 140,165,000
  • Shortfall = there are 3,159,000 fewer people employed today.
  • The total workforce (employed + unemployed) has increased by only 71,000 since December 2007
For those supposedly bullish temporary worker jobs:
  • Since December 2007, there has been a decline of -262,300 temporary workers
  • Since June 2009, the bottom of the recession, temporary workers are up by 538,000, with the bulk of that increase in 2009.
  • Since September 2010, the number of temporary workers is up by 177.3, +8.40%
Overall, the economy is still in efficiency and not expansion mode. Until there is an emphasis on investment rather than the flailing efforts at stimulating demand, we're in for more of this sideways movement in employment for quite some time until the returns from investment exceed their perceived risks. As I have stated in many presentations this year, the problem is not uncertainty, is as commonly asserted in the press. It's certainty. All of the issues that are raised about the economy that are claimed to be uncertain, such as health care, tax rates, regulations, and other matters, are actually well-known. These are all matters of in-place legislation which has been published as to their specific details including their dates of implementation and explanation, as well as their costs of compliance. For some reason, small and mid-size businesses are assumed to be complete buffoons and have no clue about these costs, and neither do their CPAs, insurance agents, Chambers of Commerce, and trade associations. It would have to be a massive conspiracy of buffoonery for them not to realize that there are changes ahead. Small business owners generally work with time horizons of three to five years, even if they do not have a formal written plan. Their plans become more formalized as they consider capital investments in equipment and buildings. These often which require them to plan their finances for ten or more years into the future. In this process, they are well aware of the implications of decisions made in Federal and State legislatures, and regulatory agencies that affect their decisions. When businesspeople calculate the net present value of investments using higher tax rates already in legal effect (the current rates and the higher ones that arrive in 2013), and current inflation rates (though likely inflation ahead may be somewhat higher), a shrinking number of planned projects exceed the threshold of financial risk. Projects related to even modest business expansion cannot pass this test. Therefore, investments in efficiency, which have near-term, lower-risk, and more measurable impacts, are favored. This means that investments in communications and internal computing and other systems take precedence, and interest in greater capital goods do not. This implies that productivity will continue to exceed economic growth, reducing the need to expand workforces. Until the calculations of the risks of expansion start to differ, and are exceeded by their rewards, there is a possibility the employment conditions may start to degrade again. There are some business observers who believe that a second recession has started, and that may be the case. It's more likely, however, that the economy will continue to bump along sideways, with a mix of encouraging and discouraging signs, keeping pessimists and optimists well-employed. This bumping along can be seen in our recovery indicators. Two of the them, the NASDAQ composite index, and non-manufacturing imports, are below the levels of the start of the recession. On an inflation-adjusted basis, the NASDAQ is actually -14% below its December 2007 level. Proprietors' income, a measure of small business activity that is part of the Gross Domestic Product calculation, is up since December 2007, but not after inflation taken in account. It is almost -6% below its level at the start of the recession. (Click on table to enlarge it) The third quarter GDP was probably in the range of 2%, and the fourth quarter will probably be the same. Expectations are that 2012 will be a much better year because the Presidential election cycle typically plays out that way. Most all economic forecasters expected 2011 to be a strong year, and most all of them cut their forecasts in half by the middle of the year. Somehow, small and mid-size businesses find ways to navigate their way through the conditions and the confusing forecasts, and unfortunately get little credit for doing so.