U.S. Jobless Rate Exceeds 10%While Payrolls Decline

The October employment report from the Bureau of Labor Statistics contained no good news on labor market conditions. That especially was true of the unemployment rate. It rose to 10.2%, the highest since early-1983 just following the severe recession of 1981-82. A 9.9% rate had been expected. Continued declines in employment were evident from the payroll survey where the total number of jobs fell 190,000 which was about as expected. Revisions indicated that September and August payrolls fell less than reported initially. All in all, the best that can be said about the job market is that employment is falling more slowly than earlier this year.

The increase in the jobless rate to 10.2% was due to a 589,000 (-4.4% y/y) decline in household employment which followed a 785,000 September drop. These declines were shallower than the worst monthly declines of this past winter, but not by much. The contraction in the labor force, reflecting more discouraged workers, similarly was reduced m/m from September and from earlier this year. However, the y/y decline of 0.6% was the worst since 1952.

The official unemployment rate continues to pale in comparison to the rate which includes "marginally attached workers" and those who are working part-time for economic reasons. It rose to a record 17.5%. Another tally of joblessness indicates that with "discouraged workers" the unemployment rate rose last month to 10.7%. Not only are more individuals unemployed or have stopped looking for work, but the median duration of unemployment jumped last month to a record high of 18.7 weeks. The ranks of those unemployed for 27 weeks or more rose to 5.594 million (145.9% y/y), also an historic high. By educational attainment, those with a high school diploma but no college saw employment fall 6.3% y/y while employment of those with a bachelor's degree or higher rose 0.1% y/y.

Nonfarm payrolls fell 190,000 which roughly equaled expectations for a 175,000 worker decline. So far during this recession employment has fallen by a total of 7.4 million, by far the record for a 22-month period. In percentage terms, jobs are down 5.3% since the 2007 peak, also a record. If there is good news, it's that the decline in payroll declines moderated to an average 188,000 over the last three months versus the hefty rate of 701,000 this past winter.

Just 14.9% of industries raised employment levels during the last twelve months (a new low), compared with 65.5% during 2006. However, over the last three months, the percentage of firms lifting employment has more-than-doubled to 31.0%.

By industry last month declines in payrolls were broad-based, but they are easing from earlier this year. In private service industries they fell 61,000 (-2.9% y/y). Payrolls fell in retail trade (-3.8% y/y), financial (-4.8% y/y), professional & tech services (-3.4% y/y), but they rose in education (+0.8% y/y) and in the health sector (2.3% y/y). Employment in the government sector also has been weak as budgets shrank with lower tax revenues. Last month the number of jobs overall were unchanged (-0.4% y/y) as were the number of local gov't jobs (-0.9% y/y). Factory sector jobs fell 61,000 (-1.6% y/y) last month, continuing a decline which began in 1998. The decline totals roughly six million jobs, or one-third of the workforce. Construction jobs fell 62,000, after declining an average 88,000 each month this year.

Average hourly earnings increased just 0.3% during October. That slim gain was enough to pull the y/y increase down to 2.4% which was its weakest since late-2004, off from 4.2% reached during 2007. Earnings in the factory sector were unchanged for the second month in the last three (+2.6% y/y). The durable sector's earnings rose 0.3% (3.7%) after a 0.4% September increase. Earnings in the private service sector rose just 0.2% (2.7% y/y) while construction sector earnings recovered 1.5% (2.9% y/y) after a September decline.

The figures referenced above are available in Haver's USECON database. Additional detail can be found in the LABOR and in the EMPL databases.

Housing's Great Fall: Putting Household Balance Sheets Together Again from the Federal Reserve Bank of St. Lois can be found here.

In the OECD area everything is coming up roses. Some are more in bloom than others and some have more thorns than others but the OECD gave a very upbeat assessment to activity in the OECD areas.

OECD leading indicators ... “point strongly to growth in Italy, France, the United Kingdom and China, while tentative signals of expansion have emerged in Canada and Germany," the OECD said. "A recovery is clearly visible in the United States, Japan and all other OECD economies and major non-OECD economies," it added.

The OECD indicators selected in the table above all show strong (double digit) increases over the recent six months expressed as annual rates of growth. Simple three-, six- and twelve-month growth rates are positive across all these countries/groups with the exception of 12 month growth in Japan (see top panel of the table above). The OECD data are up-to-date though September.

Echoing this sentiment are the new industrial orders for September released today by Germany that find orders on the growth path for the seventh month in row. The problem for Germany is that now domestic orders have dropped for the second month in a row. The two month drop which amounts to a bit more than a 3% set back comes on the heels of a 9.5% monthly rate super spike in domestic orders for July. Still foreign orders continue to expand and Germany’s domestic orders are not along for the ride.

The OECD data show us why German export orders are rising: that export oriented economy exports goods globally and the whole OECD area is having a nice snap back. But Germany is still an important country in EMU, the largest economy there. Having the German domestic factory sector so weak on top of previously-reported weakness in German retail sales, is a clear warning sign to not get too carried away by optimism.

The OECD area is snapping back from a very ugly recession. But the recession was so ugly that the snap back can look strong but still fail to bring growth to a strong enough point to spur a drop in unemployment. That’s exactly what we seeing in the US. Despite a US MFG sector that has been posting good results, increases in industrial production and a rise to strong level for the MFG ISM, the US is not seeing job growth. Europe is finding some growth deficiencies as well. Today the UK got an unexpected visit from a higher PPI. The OECD area is not strong enough to be abele to cope with any inflation signals just yet. Let’s hope the UK PPI is just a rogue signal. Meanwhile, we need enough economy strengthening to create job, income and spending growth while allowing savings to make some headway as well. It’s a tall order that we are falling short on despite the growth path endorsed by the OECD.