While it is too early to declare victory, the December jobs report added to the evidence that the economic picture is brightening in the U.S. and should continue to improve slowly in 2012.
According to the Bureau of Labor Statistics, 200,000 new nonfarm jobs were created in December, exceeding economists’ forecasts in what must be described as a solidly positive report. This number compares to 100,000 in November and brings the total for 2011 to 1.6 million jobs created.
Consistent with previous months, companies added to total employment while governments continued to downsize. For the full year, 1.9 million private jobs were added compared with a loss of 280,000 public sector positions as states and
municipalities continued to downsize.
Meanwhile, other data in the employment report supported the generally positive tone. Average hours worked per week by all private sector employees increased by 0.1 to 34.4 hours, while manufacturing workers are putting in a half-hour of overtime per week on average. And hourly earnings rose 0.2 percent for the month and 2.1 percent for all of 2011, not enough to beat inflation but progress nonetheless.
While this report is undeniably positive, the odds are that it doesn’t get much better for the rest of the year.
Some of the gains were seasonal slots that will disappear soon. Nearly half of the new hires were accounted for by the package delivery, retail and restaurant industries.
Many of these positions will evaporate as the holiday shopping season subsides, placing a drag on the January and February numbers. Consumers dipped into savings to finance Christmas shopping, and one should expect less robust retail spending ahead as households retrain their attention onto their balance sheets.
This cyclical undulation in retail hiring may be attenuated by increasingly robust job growth in manufacturing, health care and energy in the months ahead.
The unemployment rate fell from 8.7 percent to 8.5 percent in December, substantially better than the 9.4 prcent with which we rang in 2011.
However, much of the improvement can be attributed to statistical noise and to an unsettling structural trend. An estimated 2.5 million people have left the workforce and are no longer counted as unemployed even though they want a job, and almost 1 million of these are considered discouraged workers who have given up looking.
Sustaining job gains at a 200,000 clip for the next few months would entice part of the discouraged cohort back into the market, swelling the labor force and ratcheting up the unemployment rate temporarily. Since it is generally assumed that 125,000 new jobs per month are required just to absorb new entrants into the job market, the unemployment rate could remain stuck near its present value for the rest of the year and will take several years to revisit anything like pre-recession levels.
December marks the 15th straight gain in employment, with a net addition of 2.7 million jobs since the depths of the recession. We still have a long way to go and progress will be grindingly slow; nevertheless, the report was definitely good news.
Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Christopher A. Hopkins CFA, is a vice president at Barnett & Co. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by emailing him at dfless email@example.com.