The Bureau of Labor Statistics’ key monthly jobs report was one of
the most anticipated economic data releases throughout 2012. Reaction to the numbers ran the gamut from disappointment
and pleasant surprise to pure befuddlement.
The data served as an indicator for the economic recovery and helped fire up a
contentious debate ahead of the presidential election. So is America getting back to work?
With data on all but the final month of the year out, it's clear the economy is growing, slowly and deliberately -- slowly perhaps being the key word. One way to look at it: in the first half of the year, the U.S. averaged an addition of 146.6K jobs each month. In the second half (minus December data), it averaged 167.6k new jobs per month. But on a monthly basis, the U.S. started out 2012 on a jobs growth note it was unable to match for the rest of the year, with 275,000 jobs added in January. From there, the numbers went downhill and in April hit a span in which the economy mustered just 200,000 jobs total across a three-month-period.
Most economists would like to see consistent jobs growth in excess of 200,000 each month for a healthy recovery.
"Unemployment is still elevated and job growth has been slow, nonetheless unemployment has been coming down, and over 1.5 million jobs have been created this year, consistent with a slow but steady economic expansion," says JPMorgan chief economist, Michael Feroli.
One major issue is that it's been considerably tough for those who have lost jobs to find new ones. "While rates of layoffs and discharges have been low, so too have hiring rates, so while one is less likely to lose their job now, if you do lose a job, it will be difficult to find another one," says Feroli.
You can't discuss jobs in 2012 without mentioning the now infamous tweet of former General Electric CEO Jack Welch. In response to the better-than-expected September jobs report released on October 5, which was the final release before the election, Welch tweeted: "Unbelievable jobs numbers..these Chicago guys will do anything…can't debate so change the numbers." Soon followed a media frenzy about Welch's conspiracy theory regarding the Obama administration cooking the books.
"Having followed these numbers for 25 years and knowing the people who put them out, it's absolutely bizarre; it's outrageous," said Lawrence Mishel, president of the Economic Policy Institute, on YFinance's Daily Ticker. "The data [are] based on surveys of tens of thousands of employers and households every month."
What happened: The Bureau of Labor Statistics' reported the U.S. added 171,000 jobs and the unemployment rate fell to 7.8% in September, down from 8.1% a month earlier. It also reported that the civilian labor force rose by 578,000 to 155.6 million.
On October 9, Welch penned an op-ed in the Wall Street Journal titled, "I Was Right About That Strange Jobs Report." In it, he compared the backlash of criticism that ensued post-tweet to how people were treated in Soviet Russia or Communist China, reiterating his stance that the 7.8% unemployment rate was "downright implausible."
A month later, the jobs growth figure was revised down by 33,000. And the November report showed people were leaving, not joining, the labor force. But the unemployment rate for October was unrevised, and we learned the unemployment rate for November fell even lower, to 7.7%.
The Problem With the Unemployment Rate
The final employment data released inside the 2012 calendar year, reflecting the job situation in November, is a perfect example of why it's a bad idea to rely on the unemployment rate to understand what's happening in the economy. On the surface, it would seem very positive. The rate dropped to 7.7%, its lowest level since 2008. However, the reason the rate dropped is because of an exodus of people from the "pool of available workers" -- 542,000 additional adults chose not to look for work.
That's not good. And it’s part of why Jerry Webman, OppenheimerFunds’ chief economist, would rather people focus on the jobs growth figures, not the headline unemployment rate.
[Read more: Unemployment Rate Falls, More Adults Discouraged, Quit Looking]
Jobs growth in 2013 will come from the private side, and the good news is it has already been coming from there, says Webman. "If you compare it to other post-recession periods, there's no question that employment levels have stayed lower longer, which is exactly what you'd expect in the aftermath of a crisis,” he says. “It takes much longer for economies to recover and begin to expand."
One area that's not likely to see growth is government employment. Any sort of grand bargain to avert the “fiscal cliff” is expected to come with cuts somewhere. "We talk about cuts in entitlement but there will be cuts in government programs, and those carry jobs," says Webman.
As for the unemployment rate, "the economy would have to add about 12.8 million jobs over the next three years—about 356,000 each month—to bring unemployment down to 6 percent," writes Peter Morici in an op-ed for YFinance. That would require GDP growth in the range of 4% to 5%, he adds.
For perspective, JPMorgan's Feroli expects the economy to grow at an annualized rate of a little under 2% in 2013 -- although he would like to see much faster growth.
Barring any knee jerk reaction to a fiscal cliff deal, or lack thereof, 2013 may turn out to be not so very different than 2012, with jobs growth mirroring a slow economic recovery.