The government issued a surprising report on the labor situation for November this morning. The surprise, however, was not in the number of jobs created; that number came in at 120,000, just 5,000 jobs shy of the consensus expectation of 125,000 new payrolls. Rather, the shocker came in the unemployment rate. This metric had been in the 9.0%-9.2% range for some months now. And expectations had been for that number to come in at 9.0%--just as it had in October. Instead, the number dropped to 8.6%, the lowest monthly rate since March of 2009, when the nation was coming to the end of the long and deep recession. Unemployment is a lagging indicator, so it is not surprising that the situation only worsened after the economic recovery began, although the lag this cycle has been much greater than normal.
Meanwhile, there are two possible explanations for the surprising drop in the jobless rate last month. First, there has been a sharp and, hopefully, sustainable decline in joblessness that could be sustained in the coming months. That is the positive scenario. Second, the decline only meant that fewer persons were actively looking for work last month, and according to the government's way of calculating the jobless percentage, those not looking for employment, while still not working, are now statistically not considered to be among the unemployed.
Our sense is that the latter situation is the more accurate. There simply are not enough payrolls being added, we think, to dramatically bring down the jobless rate. We hope that we are wrong, for it would be a good sign to have the unemployment rate start coming down on a sustainable basis. However, that view is hard to justify, at this point. Our thinking is that we need about 200,000 new jobs added each month to seriously bring down the jobless rate on a long-term basis. And we are nowhere near that level, at this time.
Meantime, in addition to the sharp falloff in the unemployment rate--a level that had stayed between 9.0% and 9.2% from April through October--we saw the rate of joblessness among adult males fall by 0.5%, to 8.3%. There was little change in the rate of unemployment among adult women last month (7.8%), however. Also, the number of long-term unemployed (those out of work for 27 weeks, or longer) was little changed at 5.7 million, and accounted for 43.0% of the total unemployed.
In another positive development, the government upwardly revised its estimate of the number of jobs added in October from 80,000 to 100,000, while it also upwardly revised the estimated payroll increase for September from 158,000 to 210,000. The jobless rate, initially calculated at 9.0% in October, was not revised. At the same time, the Labor Department reported that private-sector payrolls had increased by 140,000 last month, with the difference in that number and the overall payroll gain of 120,000 being accounted for by 20,000 government layoffs across the country.
All in all, it was a solid report, both on the payroll front--and especially in the upward revisions for September and October--and especially so from the standpoint of the unemployment rate, although the burden of proof will be on that rate to continue at such a level, or decline further in the months ahead.
Finally, taking the average non-farm payroll level for the past three months, we find that it now stands at just over 143,000 per month. That compares favorably, albeit modestly so, with the 131,000 monthly average monthly payroll gain for the past 12 months.
At the time of this article's posting the author did not hold positions in any of the companies mentioned.