Economic Update—December 6, 2013

By Steve Scranton, SVP, CFA
Chief Investment Officer

Employment Report

The Bureau of Labor Statistics (BLS) provided good news on the nation’s employment situation for the month of November. Contrary to previous months, this month’s report was a very solid report and will undoubtedly lead to heightened speculation that the Federal Reserve will begin to reduce its injection of liquidity into the economy (Quantitative Easing) sooner rather than later.

The nation added 203,000 jobs in November, which was higher than the consensus estimate of 185,000. The BLS revised September’s jobs data up by 12,000 and lowered October’s data by 4,000. The net result is that 8,000 more jobs were created over the past two months compared to the original reports.

The nation’s unemployment rate fell from 7.3% to 7.0%. This was not due to a reduction in the labor force. The labor force actually increased by 455,000. As a result, the labor participation rate rose from 62.8% to 63.0%. This is a data point that the Federal Reserve is monitoring as they deliberate when to reduce Quantitative Easing. To keep things in perspective, the rise to 63.0% is still lower than the rate that existed in September (63.2%). It is also lower than the rate that existed last November (63.6%). Progress is being made, but it is a slow, stop and start process.

Taking a closer look at the employment data shows that the positive news was not universal. Education continues to be a major factor in people’s ability to find work. The following table show the data broken down by educational attainment. The data shows that those individuals with a high school education are dropping out of the labor force and seeing a continued drop in the number actually employed. Those with bachelor’s degrees or higher are seeing the best success in finding jobs. What the data does not tell us is whether the college educated are finding jobs in the careers they desire or, if they are taking lower paying jobs that the high school graduate would historically take.

Educational Attainment Change in Labor Force Change in Employed Unemployment Rate
Less than High School +202,000 +192,000 10.8%
High School Graduate (319,000) (603,000) 7.3%
Some College or 2 Year Degree +129,000 +113,000 6.4%
Bachelor’s Degree or Higher +581,000 +754,000 3.4%

The unemployment rate by age group shows the challenges faced by the youth of America.

Age Group Unemployment Rate
16-19 years 20.8%
20-24 years 11.6%
25-34 years 7.4%
35-44 years 5.7%
45-54 years 5.5%
55 and over 4.9%

The alternative measures of unemployment all declined which shows that the improvement in this month’s employment situation was broad based.

October November
U3 (Official unemployment rate) 7.3% 7.0%
U4 (U3 plus discouraged workers) 7.8% 7.5%
U5( U4 plus marginally attached workers) 8.6% 8.3%
U6 (U5 plus involuntary part time workers) 13.8% 13.2%

The news continues to be negative for the long‐term unemployed. The median average duration for those unemployed rose from 36.1 weeks to 37.2 weeks. The percent of unemployed who have been unemployed for more than 15 weeks rose from 51.9% to 53.6%. The percent of unemployed for more than 27 weeks rose from 36.1% to 37.3%.

There was positive news on the salary front. Workers were able to stay slightly ahead of the inflation rate in November.

  • Average hourly earnings rose .2% for the month and 2.0% year over year.
  • Overtime rose from 3.4 hours to 3.5 hours.
  • Average work week rose from 34.4 hours to 34.5 hours.

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

Industry Sub-industry Industry Jobs
Sub-industry Jobs
Goods Producing 44,000
Mining & Logging 0
Construction 17,000
Manufacturing 27,000
Service Producing 152,000
Whoesale Trade 6,800
Retail Trade 22,300
Transportation & Warehouse 30,500
Information (1,000)
Financial Services (3,000)
Professional & Business Services 35,000
Education & Healthcare 40,000
Leisure & Hospitality 17,000
Other 4,400
Government 7,000 7,000
Total 203,000 203,000

Today’s employment report was a solid, positive report. As discussed above, this will undoubtedly fuel speculation that the Federal Reserve will move to reduce Quantitative Easing in either December or March. As that speculation grows, it would not be at all surprising to see fixed income yields rise and the equity market pull back from its highs. Some of this has already occurred over the past week. If we step away from the speculation of the market, perhaps it would be good to consider what the new Federal Reserve Governor nominee (Janet Yellen) has said she focuses on regarding employment. Yellen has stated that she is watching six indicators: Unemployment Rate, Labor Participation Rate, Labor Turnover Rate, Job Hiring Rate, Job Firings Rate and Payroll Growth. Currently, the Unemployment Rate, Job Firings Rate and Payroll Growth are at or above target levels (supports reducing Quantitative Easing). The Job Hiring Rate, Labor Turnover Rate and Labor Participation Rate remain below target levels (supports continuing the current pace of Quantitative Easing). The Federal Reserve meets December 17‐18 and will provide further feedback at that time.