U.S. Jobs Report and Hourly Earnings

By: Ian_R_Campbell

While on Friday the U.S. Jobs Report said that 171,000 net new jobs were created in October, that report which you can access here, and other reports say:

• average hourly wages in the U.S. stagnated in October at $23.58;
• 84,000 more jobs were created in August and September than were previously reported; and,
• the broader measure of U.S. unemployment, which includes people currently not looking for work because they don’t believe they can find a job, improved slightly to 14.6% in October.

Broadly, most reports and commentaries I have read on Friday’s U.S. Jobs Report see that report as a positive sign for the U.S. economy.  For the following reasons I see what the report says much more as a ‘treading water’ report, and less as an ‘economy recovery’ report.  My reasons are:

• neither seasonally adjusted construction or manufacturing jobs showed significant change in October from September.  In fact, manufacturing jobs were reported by the Department of Labor as having shown little change since April.  While many economists and commentators seem to think that ‘a job is a job is a job’, I don’t share that view.  For me:
• construction jobs, which I would think include infrastructure construction jobs, has to be a key indicator of a country’s economic growth prospects.  In October the U.S., with a total estimated civilian workforce of 156,000,000 persons is reported to have created only 17,000 net new seasonally adjusted construction jobs in October, and
• manufacturing jobs has to be a second key indicator of a country’s growth prospects, with for me ‘durable goods’ manufacturing jobs being more important in that equation than ‘non-durable goods’ manufacturing jobs.  In October the U.S., is reported to have created only 13,000 net new seasonally adjusted manufacturing jobs in October, of which only 5,000 were created in the ‘durable goods’ manufacturing category;
• a vibrant long-term growth economy cannot succeed by the populace of that economy selling private sector service job outputs to one another.  Recall that Thomas Friedman, in his book The World is Flat, said several years ago that eventually Americans may end up ‘selling hamburgers to each other’.  From my perspective, this is because service jobs, certainly the well-paying ones, typically:
• are filled by the better educated segment of the population, and
• provide short-term and most often non-transferable value to the purchaser of them.

In October, of the total 171,000 net seasonally adjusted jobs reported to have been created, 163,000 of those were reported as having been private sector service jobs.

A further issue with the U.S., or any other country, monthly jobs reports is that they are subject to upward and downward subsequent adjustments.  The U.S. October Jobs Report revises previously reported total nonfarm payroll upward by 35% for August (from 142,000 to 192,000), and by 30% for September (from 114,000 to 148,000).  These obviously are significant adjustments, leaving one to wonder at the credibility immediately given to the first reported numbers by the financial markets, economists, reporters and commentators.  This in circumstances where statistically significant adjustments to ‘first reported employment numbers’ could be either up or down.

In the twelve months ended October 31, 2012, the report says that a net 1,963,000 total nonfarm payroll jobs have been created in the U.S. – or 163,583 per month.  There are any number of calculations as to the number of net new jobs that need to be created each month in the United States simply to keep up with population growth.  For example see How Many Jobs Are Needed to Keep Up with Population Growth where a number of about 125,000 per month is suggested.  That seems to a number others identify with, although some suggest higher numbers.

*Federal, State and Local

For me, the following things ‘jump out of the table’ and ought to hit one squarely in the forehead:

• the total government 12 month jobs reduction number is extremely surprising.  If this number is accurate it says that U.S. Federal, State and Local Governments collectively have for all intents and purposes not reduced net employment in the past twelve months.  I find that hard to believe in circumstances where many, if not virtually all, of those Governments are running annual deficits, and where Government jobs are said to total 16.5% of all U.S. jobs at October 31;
• while that the numbers say that private sector ‘service-providing’ ‘businesses’ have been greater job creators in the past 12 months than have private sector ‘goods-producing’ businesses (including construction and manufacturing) is no surprise, I find the extreme relationship of job creation between those two broad sectors very disconcerting.  Essentially this means, if I am right in my view as to:
• the importance of manufacturing to country-specific economic growth, and
• the comparative unimportance of service jobs to country-specific economic growth
all the talk about job creation and economic recovery in America is political rhetoric and meaningless economist-speak – and in the word’s of William Shakespeare, ‘much ado about nothing’.

All the foregoing in aid of my belief that if you participate in the financial markets you should weight what you listen to and read about U.S. (or any other country) labour and unemployment statistics with at least a ‘few grains of salt’ in the context of country-specific long-term economic growth.

As with many things, the ‘devil is in the detail’.  The following table summarizes selected data extracted from Table B-1 of last Friday’s U.S. October Jobs Report for “Employees on nonfarm payrolls by industry sector and selected industry detail”, with calculated year/year changes and % of private sector jobs created by broad industry sector.  All numbers in the table are said to be seasonally adjusted.

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

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