Jobs Report - Trick or Treat

We celebrated Halloween this week with spooky news about Greece. The topic this week is about something that I found confusing, the difference between the number of new jobs added and the unemployment rate. This week is seemed that things went from being happy to being sad, fitting for a week with tricks and treats. Initially, is something from Vanguard. Lastly is some history from 1955.

Vanguard

Another weak U.S. jobs report and little clarity over Europe's debt crisis tipped a mixed week toward the glum side. After European leaders appeared to have an agreement in hand early in the week to shore up Greece, the country's political situation deteriorated markedly. By Friday, the Group of 20 had adjourned without broad backing to contain the crisis. For the week ended November 4, the S&P 500 Index fell 2.5% to 1,253.23 (for a year-to-date total return of about 1.33%). The yield on the 10-year U.S. Treasury note fell 30 basis points to 2.04% (for a year-to-date decrease of 126 basis points).

Jobs - Trick or Treat

Normally, the various jobs reports make sense except this week. Today's Charlotte Observer newspaper held the answer which I want to share. Here is the information from the article titled "Modest gains for job market in Oct." Note that Vanguard call it weak while the Charlotte Observer called it modest gains. It appears that the media is confused as well. When this happens it is best to let the data do the talking.

The number of new jobs added during October was 80,000 jobs fewer than the 100,000 jobs that was expected. The unemployment rate dropped from 9.1% to 9.0%. We need 125,000 new jobs to keep the same unemployment rate. So how did the unemployment rate drop when we had less than 125,000 new jobs added?

The article explains that the data comes from 2 sources. To calculate the number of new jobs added, the government uses a survey of mostly large companies and government agencies. To calculate the unemployment rate the government uses a separate survey of households that includes small business like farmers and others that are self-employed. At first blush, the data is saying that small business is growing faster than large business.

The household survey shows that 277,000 jobs were added in October and an average of 335,000 job per month for the last 3 months. The last time the household survey was this strong was in 2006.

The large company and government survey comes out in 2 steps an initial reading, an approximation, that gets reported and then a revised actual reading that is not reported. Remember in August when the initial reading said that 0 jobs were created. The August actual reading was 104,000 more jobs. The September initial reading was 56,000 more jobs with an actual reading of 158,000 more jobs. This means that the October actual reading will probably be higher as well.

Other data: The number of long term unemployed who have been looking for work for at least 6 months fell by 366,000 to 5.9 million the fewest since April. The total number of jobs lost since February 2008 is 8.8 million while the number of jobs that has been created has been 2.3 million jobs.

If we are creating jobs why is the unemployment rate so high? The adult non military population has grown by 7.5 million people. We need an economy that is creating about 125,000 new jobs each month just to maintain the unemployment rate.

You be the judge if the the jobs report was week or the jobs report had modest gains. Personally, I agree with modest gains.

History

The following comments were made in the year 1955! That’s only 56 years ago. Imagine what things are going to be like 56 years from now in 2067!

• “I’ll tell you one thing, if things keep going the way they are, it’s going to be impossible to buy a week’s gro-ceries for $10.00.”

• “Have you seen the new cars? It won’t be long before $1, 000.00 will only buy a used one.”

• “If cigarettes keep going up in price, I’m going to quit - 20 cents a pack is ridiculous.”

• “Did you hear the post office is thinking about charg-ing 7 cents just to mail a letter? They will also probably do away with the penny post card.”

• “If they raise the minimum wage to $1.00, nobody will be able to hire outside help at the store.”

• “When I first started driving, who would have thought gas would someday cost 25 cents a gallon? Guess we’d be better off leaving the car in the garage.”