December jobs report

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December jobs report: more signs of real tightness, while new jobs added are (seasonally?) disappointing

There were three big questions I had going into this jobs report: 

1. whether the big decrease in new jobless claims to a half century low would translate to another big top line number in the jobs report

2. is wage growth holding up? Is it accelerating?

3. Would last month’s “poor” 210,000 number of new jobs be revised higher? 

The answers were:

1. The 6 month average of monthly gains has declined significantly, from about 600,000 to 500,000 – still very good, but a significant deceleration in the past 2 months. We still have 3.6 million jobs to go to equal the number of employees in February 2020 just before the pandemic hit. At the current average rate for the past 6 months, that’s about 7 more months.

2. Wage growth is still very high, at 5.8% YoY, a slight deceleration from last month.

3. Both of the last 2 months were revised higher, but November’s revision was only +39,000, still disappointing.

Here’s my in depth synopsis of the report:

HEADLINES:

• 199,000 jobs added. Private sector jobs increased 211,000. Government jobs declined by -12,000 jobs. The alternate, and more volatile measure in the household report indicated a gain of 671,000 jobs, the second very sharp increase in a row, and which factors into the unemployment and underemployment rates below.
• The total number of employed is still -3,049,000, or -2,3% below its pre-pandemic peak.  At this rate jobs have grown in the past 6 months (which have averaged 508,000 per month), it will take another 7 months for employment to completely recover.
• U3 unemployment rate declined -0.3% to 3.9%, compared with the January 2020 low of 3.5%.
• U6 underemployment rate declined -0.4% to 7.3%, compared with the January 2020 low of 6.9%.
• Those not in the labor force at all, but who want a job now, declined -106,000 to 5.713 million, compared with 5.010 million in February 2020.
• Those on temporary layoff decreased -63,000 to 872,000.
• Permanent job losers declined -206,000 to 1,703,000.
• October was revised upward by 102,000, while November was revised upward by 39,000, for a net gain of 141,000 jobs compared with previous reports.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall and will help us gauge how strong the rebound from the pandemic will be.  These were on balance positive:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -0.1 hour to 40.3 hours.

• Manufacturing jobs increased 26,000. Since the beginning of the pandemic, manufacturing has still lost -219,000 jobs, or -1.7% of the total.
• Construction jobs increased 22,000. Since the beginning of the pandemic, -88,000 construction jobs have been lost, or -1.2% of the total.
• Residential construction jobs, which are even more leading, rose by 700. Since the beginning of the pandemic, 46,600 jobs have been *gained* in this sector, or +5.5%.

• temporary jobs declined by -1,600. Since the beginning of the pandemic, there have still been -57,100 jobs lost, or -5.3% of all temporary jobs.
• the number of people unemployed for 5 weeks or less decreased by -8,000 to 1,977,000, which is lower than just before the pandemic hit.
• Professional and business employment increased by 43,000, which is still -35,000, or about -0.2%, below its pre-pandemic peak.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.12 to $26.61, which is a 5.8% YoY gain. This continues to be excellent news, considering that a huge number of low-wage workers have finally been recalled to work, and just below lat month’s high of +5.9% YoY.

Aggregate hours and wages:

• the index of aggregate hours worked for non-managerial workers rose by 0.3%, which is a  loss of -1.5% since just before the pandemic.
•  the index of aggregate payrolls for non-managerial workers rose by 1.1%, which is a gain of 9.4% (before inflation) since just before the pandemic.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, gained 53,000 jobs, but are still -1,222,000, or -7.2% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments increased 43,000 jobs, and is still -653,000, or -5.3% below their pre-pandemic peak.
• Full time jobs increased 803,000 in the household report.
• Part time jobs decreased -275,000 in the household report.
• The number of job holders who were part time for economic reasons decreased by -399,000 to 3,929,000, which is a decrease of 461,000 since before the pandemic began.
• Health care employment declined by -3,100, a YoY gain of only 63,300, or 0.4%, despite being the most critical sector during the pandemic.

SUMMARY

Two days ago I described the November JOLTS report as being analogous to a reverse game of musical chairs, with jobs being the chairs and potential employees those wanting to sit in them. With a chronic shortage of people being willing to sit in the chairs on offer due to the pandemic, jobs are going unfilled, while virtually nobody is getting laid off. 

Today we learned that the dynamic continued in December, as the unemployment rate fell close to its 50 year lows, at a level only exceeded by one month in 2000, and during 2018-19. This also continued the dynamic of sharp wage increases for non-managerial workers.

White collar professional jobs have almost fully recovered to pre-pandemic levels. Construction is not far behind. What are lagging are leisure and hospitality jobs most hard hit by pandemic issues, and – surprisingly – manufacturing. That health care is losing workers while the pandemic is at one of its worst levels is a demonstration of the failure of how the US has been dealing with the pandemic, as Trumpist courts and governors are refusing virtually all efforts at mitigation, and vaccinations are nowhere near the level needed for safety. The Biden Administration is not blameless, as its “vaccination-only” strategy has not worked.

It is also somewhat concerning that the last two months have only averaged a little over 200,000 jobs gained. But the household report, which tends to lead at inflection points, has been *very strong,* and October’s initial gain of 531,000 has since been revised up to 648,000. I suspect that seasonality has reared its ugly head, as the huge number of Christmas holiday jobs typically added has thrown a monkey wrench into pandemic calculations. If so, next month the report for this month (January) will reverse that.

All in all, the jobs sector continues strong, and is getting very tight, but still lagging in terms of filling job openings created by pandemic losses.

The final pieces of the employment picture will not resolve until the pandemic is resolved.