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November Jobs Report: Curb Your Enthusiasm

We shouldn't make too much of what seems to be a very positive November jobs report. The unemployment rate fell to 8.6 percent, and 120,000 jobs were added. As has generally been the case for the last two years, the monthly snapshot contained marginally positive — but conflicting — news on the state of the labor market.

Several key takeaways.

Rate Games. Each month, the BLS surveys people and asks if they've been working. It creates an estimate of the total number of people working and then divides that figure into its estimate of the total civilian labor force. The number of people who said they were employed rose from 140.302 million in October to 140.58 million in November, an increase of 278,000. (Good!) But the labor force fell, as people either aged out of the workforce, or got discouraged and stopped looking. The labor force actually contracted by 315,000 in the month, according to the household survey. (Bad!) This combination of more people saying they were working even as more people dropped out of the labor force helped bring about a sharp reduction in the unemployment rate. In a truly healthy labor market, both the number of people working and the labor force would be growing.

Hold the Exuberance on Payrolls. The agency figures out how many payroll jobs were gained or lost by surveying companies and asking how many people they have on their payrolls, how much they pay them, etc. Using the data from this establishment survey, it creates an estimate for the economy at large. BLS said 120,000 payroll jobs were added to the economy in November. While moving in the right direction, this number is something of a disappointment. That's about what the economy has been doing for the past year, and it doesn't represent any great acceleration. And expectations had been driven higher by the ADP/Macroeconomic Advisers reports earlier this week that projected a gain of 206,000 private-sector jobs for the month.

Conservative Recovery Intact. Another trend continued in November. In what we've labeled the "conservative recovery," the private sector adds jobs every month and the public sector — federal, state, and local government — cuts back every month. That happened again in November. The private sector added 140,000 jobs. Growth was driven by services industries, including retail (50,000 jobs), professional and business services (33,000), leisure and hospitality (22,000). Since bottoming out in February 2010, the private sector has added 2.947 million positions. Government employers, however, cut 20,000 jobs in November, led by a 5,000-job reduction at the U.S. Postal Service. Since April 2009, government has reduced employment by 692,000; it now employs about the same number of people it did in the summer of 2006.

(According to Bill Holstein, author of The Next American Economy: Blueprint for a Real Recovery, in order to keep America globally competitive more jobs need to be created in new industries like lithium batteries, new materials and nanotechnology. In the accompanying clip, he tells my colleagues at The Daily Ticker that this can only truly begin to happen when the government begins to work in tandem with the private sector. Unfortunately, Holstein is not optimistic this will happen any time soon because congress is more focused on partisan politics and just too out of touch with how to create jobs in this country.)

Slack Attack. By any measure, there's still an enormous amount of slack in the labor market, and in the economy at large. Compared with a year ago, 1.878 million more people had payroll jobs in November. Yet employment remains far below its late 2007 peak. BLS measures of how busy workers are stagnated in November — the average work week for all employees stayed the same, and the manufacturing work week fell a bit. While they're racking up record profits, companies don't feel compelled to part with more of their cash to keep employees happy. "Average hourly earnings for all employees on private nonfarm payrolls decreased in November by 2 cents, or 0.1 percent, to $23.18," BLS reported. Over the past year, average hourly wages are up just 1.8 percent.

Hindsight Looks Rosy. Every month, BLS goes back and revises the payroll jobs figures from prior months. For much of the past two years, the trend has been for BLS to revise those figures upwards. That continued. September's number, originally reported as 103,000 and revised last month to 158,000, was revised again — to an increase of 210,000 jobs. October's figure, originally reported as an 80,000 job gain, was revised to a gain of 100,000. In other words, looking back, BLS discovered another 72,000 jobs had been created.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation