Everything You Wanted to Know About the November Job Numbers

blitt chandan 11 Everything You Wanted to Know About the November Job NumbersIn opening last Thursday’s jobs forum, President Obama told the assembled guests that he wants “to take every responsible step to accelerate job creation.” Pragmatic in his assessment of the meeting’s potential to produce outcomes in the short term, he added that “we won’t overcome our unemployment challenge in just a few hours this afternoon.”

As it turns out, he may have needed only until the next morning.

The Bureau of Labor Statistics released the Employment Situation report for November on Friday. According to its preliminary estimate, employers cut payrolls for the 23rd consecutive month in November, by 11,000 jobs. But the consensus estimate had called for a net decline of 100,000 jobs. Besting expectations, headline job losses in November narrowed to their lowest level since the beginning of the labor market contraction, in January 2008. Since November’s job losses fall within the report’s margin of error, the labor market may have expanded over the month.

Corresponding with the smaller contraction in payrolls, the report’s Household Survey shows that the unemployment rate, while remaining at its highest levels since 1983, fell from 10.2 percent in October to 10.0 percent in November.

Dig. Now Dig Deeper.

Behind the headline result, a net loss of 69,000 jobs in goods-producing industries was almost fully offset by a net increase of 58,000 jobs in services employment. Jobs were created in professional and business services; education and health services; and government employment. Even after controlling for a net increase of 7,000 government jobs, private payrolls fell by just 18,000 jobs in November. Apart from November’s results, October’s job losses were revised from a decline of 190,000 to a decline of 111,000; September’s, from a decline of 219,000 to a decline of 139,000. Together, these revisions returned 159,000 jobs to payroll estimates for September and October.

In spite of the upside surprise in the November count and the positive revisions to September’s and October’s estimates, the market’s response to the report was mixed. The Dow Jones Industrial Average inched up by 0.22 percent in the day’s trading; the NASDAQ, by 0.98 percent. For the week, both indices were slightly higher. Anticipating that a rate increase may be in the offing, Treasuries fell and the dollar spiked on a rise in bets that the Fed will now tighten monetary policy sooner than expected. The dollar’s gain against the yen was the largest in more than 10 years.

The market’s muted reaction to the report reflects an appropriate degree of skepticism. Digging further into the report, the counterweights to the favorable headline numbers become apparent. Viewed through the lens of the commercial real estate professional, the reasons for a cautiously optimistic assessment of the report are writ large.

Who Is Unemployed?
The rolls of unemployed Americans fell by 325,000 persons in November, from 15.7 million to 15.4 million. As compared to the March 2007 low point, the unemployment count has risen by 8.6 million persons. The labor participation rate, which captures the share of the civilian population that is employed or seeking employment, slipped from 65.1 percent to 65.0 percent over the month.

The 10 percent unemployment rate captures the share of individuals of the labor force who are seeking employment. Because some people will drop out of the labor market as conditions worsen (this is reflected in the lower participation rate), the unemployment rate tends to underestimate the severity of the labor market’s downturn. Including these marginally attached workers and persons working part-time for economic reasons, the alternative measure of labor underutilization in November was 17.2 percent, down from 17.5 percent in October.

Among its many dimensions of variation, some of the most striking differences in unemployment rates are across race. The unemployment rate for whites fell from 9.5 percent in October to 9.3 percent in November. The unemployment rate among blacks fell as well, from a revised 15.7 percent to 15.6 percent; among Hispanics, from 13.1 percent to 12.7 percent. The unemployment rate for Asians remains relatively lower than for other groups, slipping from 7.5 percent to 7.3 percent (note that the unemployment rate for Asians is not seasonally adjusted) over the month.

Unemployment rates exhibit even greater variation across educational attainment but were generally lower than in October. For persons with less than a high-school diploma, the unemployment rate fell from 15.5 percent to 15 percent. At the other extreme, the unemployment rate actually increased for persons with a bachelor’s degree or higher, from 4.7 percent in October to 4.9 percent in November.

Dominant apartment renter groups face continuing challenges in finding work, undermining demand for multifamily housing. For adult heads of household younger than 25, the unemployment rate jumped another 50 basis points between October and November, rising from 15.6 percent to 16 percent. The absence of new jobs for recent graduates and other young people has resulted in a sharper increase in the unemployment rate for these groups. Without jobs and the resulting income streams, younger Americans demonstrate a lower propensity to form new households. Some move home after college; others double up. In both cases, a keystone of rental demand softens, resulting in lower apartment occupancy and rental rates.

The Industries Cutting or Adding

Goods-producing industries cut 69,000 jobs in November. In construction, both residential and nonresidential categories show small declines. The largest contributor to the construction industry’s net decline of 27,000 jobs is a drop of 28,500 workers in the nonresidential specialty contractor trades. The continuing cuts in nonresidential construction payrolls parallel year-over-year declines in commercial construction spending that range from a 36.9 percent drop in the office sector to a 49 percent drop for retail shopping centers.

In the services industries, the news is better. Job losses in sectors including retail trades, information services, financial activities and leisure and hospitality were more than offset by gains in professional and business services; education and health; and government employment. The net increase in employment totaled 58,000 jobs. Cuts in the retail sector, a moderate leading indicator of retail space demand, included job losses at electronics and appliance stores; grocery stores; and sporting goods, hobby, book and music stores. The largest offsetting increase in retail employment was at department stores. In the leisure and hospitality industry, hotel payrolls continue to fall.

Education and health care services remain key areas of job growth. But the net increase in services employment in November depends most critically on a spike of almost 87,000 jobs in administrative- and support-services employment. More than half of this increase, in turn, was in temporary-help services. In a related measure from the Household survey, the number of people employed part-time because it was the only work available increased by 8.1 percent between October and November, to 2.2 million persons.

Where Do We Go From Here?
While companies have slowed the pace of job cuts as broader economic conditions have stabilized, few new jobs are being created. As of September—the most recent month data was available—there were 2.5 million job openings. This is down 48 percent from the cyclical peak in June 2007, leaving just one job for every 6.2 people who are looking for work. Absent well-matched opportunities, job losers are remaining out of work for longer periods. As of November, the median duration of unemployment is 20.1 weeks, up from 18.7 weeks in October. The average unemployed person has been out of work for 28.5 weeks, roughly six and a half months, up from 26.9 weeks in October. In fact, the average duration of unemployment is at its highest level in history. Prior to the current recession, the peak in the average duration of unemployment was 21.2 weeks in July 1983.

Revisions to the preliminary estimate for November may show larger job losses than the initial report. With a sizable contribution from temporary and administrative support factoring into November’s headline result, Real Estate Econometrics’ baseline forecast does not anticipate that private payrolls will turn consistently positive in the near term. Nor will wage-income exhibit strong sustained increases. For the time being, we remain cautious in our assessment of the job numbers and anticipate that underemployment rates are more likely to trend higher than lower.

In the current numbers, cuts in retail trade employment and higher unemployment rates for young people are both causes for concern, as is the relative absence of high-wage office-using employment. While the moderation of headline job losses should be received warmly, the unabated increases in the duration of unemployment are particularly problematic for commercial real estate demand: Ultimately, a return to robust positive absorption depends upon the labor market’s moving past stabilization and actually replacing the millions of jobs that have been lost in the contraction. The public sector cannot create these jobs, nor should it; a more favorable climate for private-sector job creation can and should.


Sam Chandan, Ph.D., is president and chief economist of Real Estate Econometrics and an adjunct professor of real estate at Wharton.

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