Friday, February 5, 2010

Highlights and Lowlights of the Jan. Employment Report

As we expected, the 'official' unemployment rate was better than the consensus, and BLS reported a loss of 20k in non-farm jobs, compared with analysts' expectations of a gain of 5k. Of course, BLS refers to such state of non-farm employment as "essentially unchanged". It appears that BLS never fails to disappoint. In order to support a positive or negative reaction to this morning's report, one must look at the details.

Long-term unemployed continued to increase. There has not been yet any sign of reversal in this upward trend. Let's put it this way, the number of long-term unemployed in Jan. was 6.3MM, up from 6.1MM in December. Approx. 200k additional people became long-term unemployed in the month of January. This figure was 2.7MM and 5.9MM in Jan. and Nov. (respectively) of last year.

2.5MM people not included in the 'labor force'. As we had expected, the number of people in the labor force, as viewed by BLS, declined further. More specifically, total not in the labor force was 2.54MM, up from 2.49MM in Dec. Discouraged workers made up 42% (1.1MM) of the non-labor force figure, up from 38% (929k) last month. What a combination - more workers quit looking for jobs, and overall, additional workers continued to lose their jobs. When including the non-labor force figure results in an unemployment rate of 11.1%.

20k non-farm jobs cut. Unlike what most analyst's were expecting, what was a growth of nearly 5k jobs in Jan., net 20k additional people lost their jobs.

Most of the losses came from construction (-75k) and transportation and warehousing (23k courier and messenger jobs were cut). Approx. 42k positions were added in retail. Net manufacturing was negative, 11k job cuts, however it included some bright spots such as 23k more jobs in car manufacturing. A temporary boost brought forth by the government.

The number of temp positions increased by 52k, which can be viewed as positive, for now. During most recoveries, temporary jobs grow before permanent ones, as employers remain uncertain regarding the stability of the recovery. However, in this case, with lack of consumer demand, lack of an upturn in the housing market, continuing deleveraging process of consumer balance sheets, and increased productivity per worker, we believe many employers may realize that they do not need to replace the temp workers with full-time employees.

And of course, one cannot discuss employment without mentioning the federal government, as it added 33k jobs in Jan. Nearly 9k were for the upcoming 2010 Census. Let's hope those employees can weather the emotional storm when conducting the census.

Net result of BLS' revisions is negative. This might not appear as significant. We just wanted to point out the 1k job-loss net result of BLS' data revision for Nov. and Dec. Nov. revision of job growth, +64k from +4k, was more than offset by the Dec. revision of job-loss, -150k from -85k. Here is the most alarming figure - net results of BLS' revisions over all 12 months in 2009 was additional job cuts of 579k. In other words, during 2009, BLS initially (monthly) under-reported job cuts by more than half a million.

9.7% unemployment rate. This is self-explanatory, but we'd like to again point out that including the people 'marginally attached to the labor force' (as referred to by BLS), the unemployment rate would be 11.2%. It is a slight improvement from Dec.'s 11.4%.

Overall, we believe a full recovery in the state of employment will continue to take some time, which will delay the overall economic recovery. We do not consider unemployment as a lagging indicator in this recession. As we expected, the Jan. figures were not necessarily disappointing; however, we believe they were also impacted by the Christmas Season. We look for continuing job cuts in manufacturing in Feb., driven mainly by construction and automobile. In addition, we believe that a sizable number of temporary workers will begin to respond to surveys by saying they no longer expect to find a full-time job, which depending on how BLS' views it, they will be excluded from labor force calculation or will be part of net temp job count. We look for similar results in the retail sector in Feb. All of this may result in net job cuts (again) for Feb.

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