Economic Update—February 1, 2013

By Steve Scranton, SVP, CFA
Chief Investment Officer

Employment Report

The United States continued its pattern of positive but sub‐par jobs growth in the month of January. The Bureau of Labor Statistics (BLS)reported that the nation added 157,000 jobs in January. This was slightly below the median forecast of 165,000. The BLS did report that more jobs were added at the end of 2012 than was originally reported. After revisions to November and December’s numbers, the BLS reported that the nation added a total of 127,000 more jobs than originally reported. The BLS also announced their annual revisions that result from gathering further information throughout the year. Overall, 2012 saw an additional 335,000 jobs added compared to the original reports.

Separately, the BLS reported that the unemployment rate rose from 7.8% to 7.9%. Part of this was due to the labor force increasing by 140,000. This is a pattern that we discussed last month where it appears that people who had given up looking for work (and thus were not counted as unemployed) are now starting to re‐enter the labor force.

The two metrics that measure how much of the broad population is employed (i.e. labor participation rate and employment‐population ratio) were both unchanged in January. The alternative measures of unemployment showed a mixed bag with some decreasing and some remaining unchanged.

December January
U3 (Official unemployment rate) 7.8% 7.9%
U4 (U3 plus discouraged workers) 8.5% 8.4%
U5 (U4 plus marginally employed workers) 9.4% 9.3%
U6 (U5 plus involuntary part time workers) 14.4% 14.4%

The average duration of unemployment continued to show improvement. The average duration of those unemployed fell from 38.1 weeks to 35.3 weeks. The percent of the unemployed who have been unemployed for more than 27 weeks fell from 39.1% to 38.1%.

Education continues to play a critical role in people’s ability to find work as the only category that saw a drop in their unemployment rate was the college educated category.

Education December January
Less than a high school education 11.7% 12.0%
High school, no college 8.0% 8.1%
Some college or associate degree 6.9% 7.0%
Bachelor’s degree or higher 3.9% 3.7%

The youth of America continue to struggle with the highest unemployment rate as people in the 16‐19 year age bracket have the highest unemployment rate at 23.4%. By comparison, people 55 and over have a 6% unemployment rate.

Workers saw their salaries increase at a slower pace than December. Salaries increased .2% for the month compared to .3% in December. Salary increases are barely staying ahead of inflation as the year‐over year salary increase was 2.1% compared to 1.7% inflation (as measured by CPI).

The three indicators that we watch as potential indicators of future increases in full time hiring were mostly negative.

  • Average work week fell from 34.5 to 34.4
  • Overtime was unchanged
  • Temporary help fell by 8,100

Analyzing the data shows the following breakdown of where jobs were created:

Industry Sub-industry Industry Jobs
Sub-industry Jobs
Goods Producing 36,000
Mining and Logging 4,000
Construction 28,000
Manufacturing 4,000
Service Producing 130,000
Whoesale Trade 14,800
Retail Trade 32,600
Transportation & Warehousing (14,200)
Information 9,000
Financial Services 6,000
Professional & Business Services 25,000
Education & Healthcare 25,000
Leisure & Hospitality 23,000
Other Services 8,800
Government (9,000) (9,000)
Total 157,000 157,000

Overall, the January jobs report contained no major surprises. Jobs continue to be added but the pace is far slower than historical standards. As a result, progress on bringing the unemployment rate down will remain slow and frustrating.

Given the Federal Reserve’s stated intention to keep interest rates low until the unemployment rate drops below 6.5%, today’s news indicates that rates will remain low for an extended period of time. The Federal Reserve’s own forecast is that it will be the end of 2015 before the unemployment rate drops below 6.5%. Some economists are now saying that it could be as long as 2018 given the current slow pace of decline.