December 27, 2013

There's much to like in November's U.S. employment situation report

In November, total employment in the U.S. increased by 203,000 jobs, the third largest month-to-month gain this year. Only February (+332,000) and August (+238,000) were better.

The figures appear in the latest monthly press release from the Bureau of Labor Statistics

From January 2008’s peak employment level (138.1 million) to February 2010’s trough (129.3 million), the drop in number of jobs was 8.8 million.

The recovery in employment since then has been 7.5 million. What was once a huge deficit has now been whittled down to only 1.3 million.

At the current rate of monthly increase (i.e., +200,000), America will catch up with its previous pinnacle in May of next year.

Equally as significant, the nation’s unemployment rate during the latest month fell from 7.3% to 7.0%. It now stands at its lowest level in five years dating back to November 2008 (6.8%).

The Federal Reserve has already specified an unemployment rate goal of 6.5% as a first step to indicating real progress is being made in revitalizing the economy. Reaching that milestone no longer seems to be the herculean task it once did.

Employment (96.2 million) in the private service-providing sector (70% of the grand total) is now 2.5 million higher than its pre-recession peak in January of 2008 (93.7 million).

By industry sub-sectors, the largest nominal month-to-month net job gains in November occurred in education and health (+40,000); professional and business services (+35,000); and transportation and warehousing (+31,000).

On a year-over-year basis, the sub-sector leaders were professional and business services (+643,000); leisure and hospitality (+422,000); and education and health (+366,000)

Total manufacturing employment in November was +27,000 month-to-month and +76,000 year-over-year.

The comparable figures for construction were +17,000 (m/m) and +178,000 (y/y).

Construction’s unemployment rate in November was 8.6%, a noteworthy improvement versus 12.2% in November of last year. As housing starts continue their upward climb, on-site jobs in residential building will expand accordingly.

The manufacturing sector in the U.S. has been experiencing a nice upswing over the past several months. November’s Purchasing Managers’ Index (>PMI) of the Institute of Supply Management (ISM) was 57.3%.

As recently as May of this year, the PMI drifted slightly below 50.0%.

The high-water mark for the PMI since the recession was 59.6% in February 2011. During the recession, it fell as low as 33.1%.

A reading above 50% indicates that both the economy as a whole and manufacturing activity as a contributor are on the rise.

The historical relationship between the PMI and gross domestic product (GDP) says that a 57.3% reading corresponds with a “real” (i.e., inflation-adjusted) growth rate of 4.7% (i.e., very strong).

U.S. total government employment in November was +7,000 jobs, as states (+8,000) and local jurisdictions (+6,000) added to payrolls, while the federal administration (-7,000) cut its workforce.

Despite tumultuous budget wrangling that briefly led to Washington-imposed furloughs in October, U.S. “all-in” public sector employment currently stands approximately even (-0.1%) with the same month of last year.

November’s bullish Employment Situation Report was a match for expectations. There have been significant improvements of late in the weekly >initial jobless claims data.

For the week ending Nov. 30, the number of U.S. first-time unemployment insurance seekers dropped below 300,000 for only the second time since May 12, 2007 (297,000).

Sept. 7, 2013 at 292,000 was the other exceptionally encouraging week this year.

During the recession, initial jobless claims maxed out at 667,000 on March 28, 2009.

Looking to the magnetic north, November’s overall >employment level increased by a relatively modest 22,000 and the jobless rate stayed the same for the third month in a row at 6.9%, according to Statistics Canada.

One particularly informative way to compare the economies of the two countries is to examine employment percentage changes year-over-year according to four major breakdowns.

The U.S. is currently performing best with respect to total jobs (+1.7% versus +1.0%); service-sector employment (+2.2% versus +1.0%); and manufacturing (+0.6% compared with -2.5%).

Only in the number of construction workers does Canada have the advantage, +4.5% above the border compared with +3.1% to the south.

Employment in Canada’s manufacturing sector in November was +25,000 for the month, but -44,000 year-over-year.

Construction showed the opposite pattern, -18,000 in the latest month but +57,000 versus November of last year.

Since the recession, the U.S. manufacturing sector has become reinvigorated (+550,000 jobs). Not so in Canada, where the number of production-line positions has trended along a flat plane.

In the >press release issued after its latest rate-setting meeting, the Bank of Canada (BOC) chose to emphasize its worry that inflation is falling below the target range of +1.0% to +3.0%. The all-items Consumer Price Index (>CPI) in Canada was +0.7% in October, which was lower than the >U.S. figure of +1.0%.

The BOC’s statement included the observation that “heightened competition in the retail sector” is contributing to restraint in prices. The value of the Canadian dollar has since fallen by a cent or two versus the U.S. greenback.

Some analysts believe BOC Governor, Stephen Poloz, is deliberately talking down the value of the “loonie”.

As former head of the Export Development Corporation (EDC), Mr. Poloz knows the degree to which a lower Canadian currency can help domestic manufacturers realize more foreign sales.

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