The White House Spins it, Romney Pans it, and the Markets Put Up With It: What to Make of the December Jobs Report
Last Friday’s employment report, which showed employers growing net payrolls by 200,000 jobs in December, met with a tempered response by economists and policymakers. While local governments pared 12,000 jobs during the month, private payrolls expanded by 212,000 positions, outpacing consensus projections of approximately 150,000 jobs. Net hiring came in above 100,000 jobs in each of the past six months. The unemployment rate fell to 8.5 percent in December.
But with only 64 percent of the population participating in the labor market, the standard metric is largely irrelevant.
The political response to the jobs data offered contrasting insights, to be sure. Writing on the White House blog last week, Council of Economic Advisors Chairman Alan Krueger described the report in positive terms, calling it “further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression.”
Governor Romney was more cautious, saying, “Of course it is good news [that] fewer Americans are out of work, but 35 consecutive months of unemployment above 8 percent is no cause for celebration.”
On the campaign trail, meanwhile, Governor Romney offered that the president “has failed to put Americans back to work.”
Equity markets were more subdued in their response, with the Dow and the broader S&P both falling after the report was released. The dollar improved to a 15-month high against the euro, however, and the yield on 10-year Treasury notes fell slightly, holding below 2 percent. The coincidence of improving data on the U.S. economy and the clouded outlook for the euro zone reflects an imbalance that continues to draw capital westward. The resulting downward pressure on long-dated Treasury rates has kept borrowing costs at historic lows for well-qualified investors.
Considering the fits and starts that have characterized the recovery thus far, placing too much stock in the avoid misreading what could prove to be another false start. Parsing of words increases in the approach to a presidential election, complicating the unbiased interpretation of any data point. Still, there are encouraging signs from other, complementary labor market indicators. The Department of Labor’s weekly report of initial and continuing unemployment insurance claims shows that involuntary separations are falling. The four-week average fell to 373,250 claims during the last week of 2011, its lowest level since mid-2008. From its nadir in mid-2009, job openings have been trending up slowly and steadily, rising to 3.3 million as of October. While hardly better than the lowest point of the prior recession, the tally is still up by roughly 50 percent over the current cycle.
December’s job gains were reasonably broad-based. Apart from the expected decline in public employment, hiring was positive in both goods and services. Nonresidential construction and contracting increased more than expected, which may be attributable to better than expected weather. In the service professions, numbers increased measurably in wholesale and retail trade, health care, and at food and drinking establishments.
An unusual spike of 42,200 couriers and messengers, attributable in part to the growth in online retail sales, may not survive into the January report. Although the monthly data are seasonally adjusted, the statistics will not account for structural changes in seasonal demand that are not stable. As a result, the seasonally adjusted data could show an offsetting decline in the next report. Controlling for the contribution of this subset of the transportation sector, the net employment gain in December was fewer than 160,000 jobs.
The aggregate data reflect other imbalances in the employment recovery. With regard to office demand, in particular, the prevailing trends call for a reserved assessment. Employers added only 6,000 information services jobs in December; year-over-year employment is down more than 1.3 percent. In financial services, only 2,000 jobs were added in December; the industry is practically flat over the past year. The outlook for financial services was muted, with layoffs, uncertainties regarding the implementation of Dodd-Frank, and a lack of clarity about the Consumer Financial Protection Bureau all weighing on projections.
An extension of the payroll tax cut beyond the two months agreed to by Congress at the end of December will put more money in the pockets of the employed. The relatively higher disposable income can encourage spending at a point when wage growth is weak but households have shown a willingness to draw down savings rates. That can support the economy in the short-term, but the impact on job creation is only indirect. There is precious little on the policy front that is adding to private employment tailwinds. But a pause in policy interventions and a determined focus on predictability are the more appropriate alternative at this juncture.
Sam Chandan, Ph.D., is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School.