Hiring pace is consistent with 'modestly below-trend' economic growth
Based on a string of huge misses by ADP, I predicted the official November numbers would badly miss as well, coming in at 88,000. Bart at NowAndFutures predicted 116,500. I offered to wager a box of Omaha Steaks (10-oz ribeyes) on the outcome. Fortunately for me Bart declined. ADP was indeed high but I would have lost the bet.
Here are the official employment numbers for November 2006.
Nonfarm payroll employment rose by 132,000 in November, and the unemployment rate was essentially unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported December 8th. Job gains continued in several service-providing industries, including professional and business services, food services, and health care. Employment declined in construction and manufacturing.The report shows that health care remains strong although it is very difficult to say what percentage of those jobs are in a high paying category. Doctors and nurses would generally be high paying positions but employment in nursing homes and social services may not be. Leisure and hospitality jobs were also strong but it is safe to assume that most of those are not high paying jobs. Professional and business services expanded very nicely and those indeed may be better than average jobs but manufacturing and construction jobs contracted and those are also better than average paying jobs.
Industry Payroll Employment (Establishment Survey Data)
Total nonfarm payroll employment rose by 132,000 in November to 136.0 million. This followed increases of 203,000 in September and 79,000 in October (as revised). Thus far this year, payroll employment has grown by an average of 149,000 per month. In November, employment rose in several service-providing industries and in mining; employment declined in construction and continued to trend downward in manufacturing.
Professional and business services employment increased by 43,000 in November and has risen by 426,000 over the year. Job growth has occurred in a number of industries, including architectural and engineering services, management consulting, and computer systems design.
Employment in temporary help services was flat over the month and has changed little since January.
Health care employment rose by 28,000 in November. Hospitals and doctors’ offices each added 6,000 jobs. Over the year, health care employment has increased by 309,000.
In leisure and hospitality, employment growth continued in food services and drinking places. This industry added 34,000 jobs in November, raising total job gains over the last 12 months to 295,000.
Employment in wholesale trade continued to trend up in November. Employment in this industry has risen by 288,000 since its most recent low in August 2003. Within retail trade, employment grew over the month in clothing and accessory stores; health and personal care stores; sporting goods, hobby, book, and
music stores; and nonstore retailers (which include catalog and internet retailers). General merchandise stores continued to lose jobs (-12,000 after seasonal adjustment); since August 2005, employment in this industry has decreased by 107,000.
In the goods-producing sector, mining employment grew by 4,000 in November with gains in support activities for oil and gas. Employment in mining has grown by 136,000 since its most recent low in April 2003.
Construction employment declined by 29,000 in November, following a loss of similar size in October. The November decline was spread across all component industries. Since peaking in February of this year, employment in residential specialty trades was down by 109,000.
Employment in nonresidential specialty trades edged down in November, after trending up during the first 10 months of the year.
Manufacturing employment continued to trend down (-15,000) in November. Motor vehicles and parts lost 7,000 jobs. Employment continued to fall in two construction-related industries: wood products (-6,000) and furniture and related products (-5,000). Computer and electronic products manufacturing added 5,000 jobs over the month.
Given that it takes about 150,000 jobs just to break even with immigration and population increases this was not really a good showing but arguably not a disaster.
Birth Death Assumptions
Following are the latest business birth/death assumptions.
Click on chart for a much easier to read view.
The above chart shows 29,000 new jobs were assumed by the government to have been created in November. Click on the above link for an explanation of how business births and deaths figure in to jobs numbers.
Construction Jobs
One of the more interesting things in the report was that "Employment in nonresidential specialty trades edged down in November, after trending up during the first 10 months of the year."
Following is a chart of construction jobs (both residential and non-residential) for November 2006. Click on chart for an easier to read view.
Before discussing construction please note the red vertical oval. It shows that 40,000 goods producing jobs were lost. It also shows that of the 132,000 jobs that were created, 13.6% (18,000) jobs were government jobs. The last thing we need is more unproductive government jobs. Taking those two numbers into consideration, this was a fairly weak set of jobs numbers and supportive of the idea we are in an economic slowdown. The massively inverted yield curve also suggests that not only is a slowdown coming, but an out and out recession is coming.
It is simply illogical to assume that businesses would even want to keep expanding in the face of a consumer led recession. Even if they did, it is important to remember that consumer spending is 70-75% of the economy (and possibly higher in THIS economy). With that as a backdrop it is also illogical to expect that corporate spending can possibly pick up the slack even IF businesses were to keep expanding in the face of a consumer slowdown.
Nonresidential building has now shown a 4 month steady decline in jobs even as non-residential trade jobs are holding up over the same 4 month period. This divergence between trade jobs and building jobs is unlikely to hold. With an October to November decline in non-construction trade jobs it is possible that this divergence is now being resolved but we must wait and see if the data point on trade jobs is an outlier.
What we can see for sure is that huge cracks are starting to appear in the myth that "corporate expansion is likely to pick up where consumer spending left off". In the dotcom bust of 2000 strength in consumer spending did pick up when corporate spending was slashed, but it is simply illogical to expect the opposite to be possible.
When corporate expansion does crack it will be part of a "Second Wave Down" in construction and jobs and will have a far greater economic impact than the decline so far in residential construction.
Bernanke's Box
In Bernanke's Box I asked
Can someone please tell me what we need more of?The bottom line is there is simply no need for businesses to expand into a consumer slowdown. It would not make economic sense to do so and that is arguably why corporate insiders are bailing at a record pace (an 18 year high), even as stock buybacks continue unabated.
Home Depots?
Lowes?
Pizza Huts?
Restaurants of any kind?
Strip Malls?
Furniture Stores?
Nail Salons?
Wal-Marts?
Office Supply Stores?
Grocery Stores?
Appliance Stores?
Auto Dealers?
Banks?
What? What? What?
Nothing is what. There is a veritable glut of every kind of store imaginable. The construction of all those places provided jobs. The staffing of all those stores provided jobs.
Commercial construction always lags residential construction simply because Walmart's, Pizza Huts, Home Depot's, Nail Salons, etc, finish their buildout after residential areas are built. This is only logical, but the mantra being sung by Wall Street pundits is that somehow corporate spending will save the day.
Mergers and Cutbacks
Watch what insiders and corporations are doing not what they are saying. What corporations are doing is wasting money at an amazing pace on stock buybacks, while cutting back on existing expansion plans.
Yes we are seeing mergers and proposed mergers especially in the banking industry as noted by the headline Bank of America may bid for U.K. bank Barclays.
Biggest financial-services deal ever would create top global bankThe important point to remember about these mergers and consolidations is that they cost jobs. There have been no estimates so far but 10,000 would not surprise me at all. We are seeing all kinds of consolidations right now in financial services and sub-prime mortgage businesses, with some of them not consolidations but outright job destructions due to bankruptcy.
Bank of America could be about to make a bid for U.K. retail and investment-banking group Barclays in a deal that would create the world's biggest bank, according to analysts at Merrill Lynch.
"Bank of America has previously indicated that the next phase of its expansion is to become a leading global commercial and investment bank. In order to achieve that goal, we believe Bank of America is very interested in acquiring Barclays," the broker said in a note to clients.
In Bernanke's Box I also noted Home Depot Sales Falloff Kills Staff Increase Plan.
November 30, 2006 -- Home Depot abruptly shelved a much-touted plan to improve customer service by hiring more store-level employees - just a month after rolling it out.For Home Depot to go from hiring plans to firing plans in a single month, things must have gone to hell in a handbasket in a hurry. There is no other rational explanation.
The about-face appears to be the result of a sales slowdown that is far more severe than the company anticipated, sources said. Rather than hiring additional employees, all stores - even those $40-million-plus high-volume locations - were told to cut staff hours by 200 per week because of falling sales.
The reason? Sales were falling short of internal projections, the result of a housing market that had stopped booming.
In summation there is not a shred of evidence that suggests corporate spending is about to pick up. There is also not a shred of evidence that suggests that even if it did, it could possibly "take over where consumer spending left off". The idea is not only illogical it is unsupported by what is actually happening.
What is happening however, is subprime lenders are blowing up throwing more people out of work, furniture stores are blowing up throwing more people out of work, proposed financial mega-mergers (if they happen) will throw more people out of work, Walmart has recently cut back on expansion plans, Home Depot did an immediate reversal of expansion plans, and now we see a 4 month straight decline in nonresidential building.
The Second Wave Down is coming, and this one will have far more serious consequences.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/
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