Patrick J. O’Keefe Shares Expectations for January 2012 Labor Report
1/31/2012
On Friday, February 3, the U.S. Department of Labor (“DOL”) will release data on national employment conditions during January 2012. Patrick J. O’Keefe, J.H. Cohn’s director of economic research, expects the DOL to report a monthly gain of 90,000 nonfarm jobs, with the private sector adding 100,000 jobs and the public sector losing 10,000. He advises to look for the unemployment rate to rise as previously discouraged jobseekers return to the labor market in pursuit of employment.
Below are O’Keefe’s comments. Click here for accompanying charts.
Background:
- At the end of 2011, total nonfarm employment stood at 131.9 million (chart 1), up 2.7 million (2.1%) since the jobs recovery began in March 2010.
- Private sector employment has increased for 22 consecutive months (chart 2), adding a total of 3.2 million jobs through December. Those gains were partially offset, however, as public sector employment declined in 17 of 22 months, losing a total of 500,000 jobs.
- During the jobs recovery, total employment has grown an average of 121,000 jobs per month (private employers averaging gains of 144,000 and public employer losses averaged 23,000).
- In December, the U.S. had 6.1 million (4.4%) fewer the jobs than immediately prior to the downturn (chart 3). Private sector employment is off by 5.7 million (4.9%), while government jobs are down about 400,000 (1.8%). In December, total nonfarm employment was marginally (0.9%) above where it stood in January 2000. Since then, the work-age population has increased 13.8%.
- In 2011, employment rose consistently, but unevenly. Private jobs rose throughout the year (chart 4) but ranged between a high of 261,000 in February and a low of 72,000 in August. Government jobs, on the other hand, fell in every month except August. Over the course of 2011, private employment increased an average of160,000 per month; public losses averaged 23,000.
Jobs Forecast:
- O’Keefe’s estimate of a net increase of 100,000 private sector jobs in January anticipates DOL reporting moderate expansion by some private service providers (notably healthcare and business services), partially offset by post-holiday cutbacks in retail trade and related delivery services. In the goods producing industries, we expect the DOL to report more energetic hiring by manufacturers, counterbalanced somewhat by reductions in construction employment.
- If total nonfarm employment growth continues at 2011’s monthly average (136,700), U.S. employment will reach its pre-recession peak in the third quarter of 2015.
- In the household survey conducted during the same week that employment data is collected from employers, respondents reported that the number of individuals holding a job has increased an average of 268,000 in the five months to December (chart 5), the largest five-month average gain since the start of 2007. (This excludes early 2010, when temporary Census-related hiring contributed to a five-month average of 274,000.)
- As a consequence, the employment rate (i.e., the proportion of work-age individuals holding jobs) increased toward the end of 2011 (chart 6). During 2007, the year prior to the recession, the U.S. employment rate averaged 63.0%. In December, the rate was 58.5%.
- Although December’s rate was somewhat better than the mid-2011 nadir, there were 10.8 million fewer jobholders than would have been the case at the pre-recession employment rate. In other words, even if the economy had recovered all of the jobs lost during the downturn, it would still have had a jobs deficit affecting 4.8 million individuals—a deficit that would not be resolved until the third quarter of 2018, at 2011’s average monthly gain in jobholding.
- In December, there was progress in reducing key indicators of labor market distress (charts 7-11), most notably: the number of jobseekers (chart 7) and the rate of unemployment (chart 8), which fell to its lowest reading (8.5%) since February 2009. The number of long-term unemployment (chart 9) has also declined. With unemployment insurance claims (chart 10) continuing to trend downward, it appears that layoffs are due to normal churn rather than inadequate demand or insufficient confidence.
- We should keep in mind, however, that the unemployment count has been diminished by the significant number of discouraged jobseekers (i.e., those who abandoned their job search due to the lack of opportunities). Although still more than twice the pre-recession average (chart 11), the number of discouraged jobseekers in December was more than one-quarter (28.3%) below where it stood a year earlier.
- Our view that the level and rate of unemployment will rise is predicated on the expectation that – with households reporting relatively robust increases in jobholding – previously frustrated jobseekers will return to the labor force at an accelerating rate. In other words, as the perception grew that labor market conditions were improving, it is likely that the number of jobseekers rose in January – which will partially (albeit only temporarily) reverse the recent decline in unemployment.
Technical note: The February 3 jobs report will incorporate benchmark revisions to the employment data derived from the monthly survey of employers. This is the equivalent of statistical housekeeping, done annually, to refine the estimates based on complete data. Although the adjustment to the estimate of total employment is not expected to be significant (about 0.1%), industry-specific estimates – and their historical comparisons – may be more substantially affected.
Patrick J. O’Keefe is director of economic research at J.H. Cohn. He can be reached at pokeefe@jhcohn.comor 1-877-704-3500.
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