Analyzing US Employment Data

US employment report by BLS has set stock markets and bonds yields to increase after many sessions of downward movement. Investors are delighted to see something good coming out of US economy after many depressing news in August.

Treasury 10-year notes and 30-year bonds dropped for a second week for the first time since April as a bigger-than-forecast gain in company payrolls eased concern the U.S. economy was falling into another recession.

The difference between 10- and 2-year note yields increased this week to the widest level in three weeks as traders reduced speculation that the Federal Reserve will provide additional economic stimulus. The 10-year note yield had its biggest three- day gain since December before next week’s $67 billion auctions of 3-, 10- and 30-year debt. BLS reports:

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

Census 2010 hiring decreased 114,000 in August. Non-farm payroll employment increased 60,000 in July ex-Census.

But the question is: How good is the news?

In his blog, Mish’s Global Economic Trend Analysis, Mish always argues about the way of analyzing unemployment data by NLS and ADP. Mish says,

"The BLS jobs report for August does not match ADP payroll estimates. Moreover, neither the BLS jobs report nor the ADP jobs report is consistent with the hot ISM number reported Wednesday. Both the BLS (details below) and ADP have a decline in manufacturing employment while ISM had a rise. Please see Rosenberg says "ISM Flunks Sniff Test "; Cashin calls ISM "an Outlier"; ADP, Other Data Does Not Confirm for more details that suggest the ISM number is nonsense."

The civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged from last month’s report. However, these measures have declined by 0.5 percentage points and 0.3 points, respectively, since April.
The drop in participation rate this year is the only reason the unemployment rate is not over 10%. The drop in participation rates is not that surprising because some of the long-term unemployed stopped looking jobs, or opted for retirement.

Employment changes as per sectors:

  • Employment in health care increased by 28,000 in August.
  • Mining employment rose by 8,000 in August. Since a recent low in October 2009, employment in the industry has increased by 72,000.
  • Manufacturing employment declined by 27,000 over the month.
  • Within professional and business services, employment in temporary help services
    was up by 17,000. This industry has added 392,000 jobs since a recent employment
    low in September 2009.
  • Construction employment was up (+19,000) in August. This change partially re-
    flected the return to payrolls of 10,000 workers who were on strike in July.
  • Employment in retail trade was about unchanged over the month.
  • Employment in other private-sector industries, including wholesale trade, trans-
    portation and warehousing, information, financial activities, and leisure and
    hospitality, showed little change in August.

Healthcare and Mining are the only sectors where hiring has increased substantially. Construction added only 9000 job if we neglect return of 10000 workers who were on strike in July. Largely, the data suggests that consumers are still not ready to spend more as wholesale trade, warehousing, financial activities did not show much change in August.

An excellent Chart by Calculated Risk points on duration of Unemployment in US:

DurationUnemploymentAug2010 (1)

27+ week unemployment currently is about 4% of Civilian Labour Force which is also a historical high. This means, never in history since 1969, there has been a time when more than 4% of the Civilian population was rendered unemployed for more than 27 weeks. Even 15 to 26 week unemployed population is more than anytime from 1969. Less than 15 week unemployment is still lower than in the past, this is due to the fact that long term unemployment had declined in past many years and normal rate of unemployment has fallen with passage of time and advancement in world economy.

There is one positive news that comes out of this graph, it seems long duration curve of unemployment has peaked out and now started to move down in August.

Hitesh Anand

I am a post graduate from Newcastle University, UK. I like studying and analyzing economic data and financial health of world.

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