Workers Give Up

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The jobs report doesn't account for the 637,000 people who dropped out of the labor force.

How bad was today’s jobs report? The unemployment rate rose to 6.7 percent, its highest level since 1993 — and that understated the weakness in the labor market.

According to the Labor Department, the number of unemployed workers rose by 251,000 in November. But the number of people who were outside of the labor force — that is, neither working nor looking for work — rose by much more: 637,000. These people aren’t counted as unemployed in the government’s statistics, because they are not looking for work. Many of them, presumably, have stopped looking for work because they didn’t think they could find a good job.

If you take a broader measure — one that tries to account for them — you see a darker picture of the labor market. The share of all men ages 16 and over who are working is now at its lowest level since the government began keeping statistics in the 1940s. The share of women with jobs has fallen almost two percentage points from the peak it reached in 2000; at no other point in the past 50 years has the share of employed women has fallen so much from its peak.

Even among those who still have jobs — who, of course, make up a huge majority of the population — the news wasn’t good. The number of people working a part-time job because they couldn’t find a full-time job rose by 621,000 last month. These people count as employed, but obviously many of them are struggling.

If there is one silver lining in the report, it’s that pay hasn’t fallen more sharply. Over the past year, the weekly pay of rank-and-file workers, who make up roughly 80 percent of the work force, has risen 2.8 percent. Inflation during the same period was somewhat above 3 percent.

That means the pay of most workers isn’t keeping up with inflation, which obviously isn’t good news. But thanks to the rapid fall in oil prices (and, as a result, overall inflation), pay isn’t trailing inflation by very much.

All in all, today’s report was still probably the worst monthly jobs report in almost three decades. Employment fell by 533,000 in November. (Why are these numbers different from the ones I cited above? The Labor Department does two different surveys each month. These job-loss numbers come from a survey of businesses, while the numbers above come from a survey of households.)

The employment decline was the largest in a single month since the mid-1970s. Controlling for the size of the population, which is a more relevant measure, last month’s drop was the biggest since 1980.

How much worse is this going to get?

Reactions from some economists follows:

Much weaker than expected report with a steep decline in November payrolls, combined with large downward revisions to September and October (net -199,000), a further rise in the unemployment rate, and a record low workweek. Quite simply, there was nothing good in this report. Even though some might take comfort in the relatively modest uptick in the jobless rate (from 6.5% to 6.7%), this is actually quite misleading. In fact, the household survey’s measure of employment came in at -673,000, an even sharper plunge than seen in the payroll figures. The jobless rate was actually restrained by a large decline in the labor force — as we had suspected. – David Greenlaw and Ted Wieseman, Morgan Stanley

Nonfarm payrolls plunged by 533K in November (the largest monthly decline since December 1974 and 200K worse than the median forecast) after a net downward revision of 199K to the preceding two months. Moreover, history tell that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while. We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline. The U.S. consumer, which for so many years was the global engine of growth, will remain a significant drag on economic activity in coming quarters….

Average hourly earnings increased by a m/m [month-over-month rate of] 0.4% in November (the median forecast was +0.2%) after a 0.3% increase in October and a 0.2% rise in September. The y/y [year-over-year] rate was +3.7% in November, which followed +3.6% in October and +3.4% in September. With demand for labor evaporating, wage increases of this magnitude will be history very soon. – Joshua Shapiro, MFR Incorporated

November payrolls fell 533K, the biggest drop in 34 years and much worse than the consensus -335K. And there was a massive net revision of -199K to the previous two months’ numbers, thanks largely to overdue downward revisions to the seasonals. This is almost indescribably terrible. In the past six months the US has lost 1.55M jobs, almost as many as were lost in the whole 2001 recession, which included 9/11 and the two months after. The pace of job losses is accelerating alarmingly, as this report attests, with steep drops in most sectors but the biggest deterioration in services. – Ian Shepherdson, High Frequency Economics