Reading Between the Unemployment Lines

Story Highlights:

• Though most accept unemployment is a lagging indicator, worrying over jobs remains a popular theme in the press.
• The unemployment rate remains stubbornly high, but looking a little deeper, we find significant evidence stabilization and an upturn in the labor market are well underway.
• That should come as welcome news to those who believe (generally backward in our view) that you can't have a recovery until you have more people employed.

While employment is widely recognized as a lagging indicator, an incessant theme in the media this year has been to fret apparent ongoing weakness in the job market. Seemingly, only in September have commentators begrudgingly admitted we may be reaching a turning point— though most quickly add the caveat that, while job creation may have begun more quickly after this recession than after the last one, the labor market has a much deeper hole to fill this time. While this last point is certainly true, there is significant evidence that stabilization and an upturn in the labor market are well underway. Adjusting data for Census distortions and looking at an alternate dataset (JOLT) provide additional perspective.

Adjusting the Headline Data

The 2010 Census created significant distortions this year, which were not a result of economic activity (and arguably contributed virtually nothing to sustained economic activity). Adjusting for these distortions, the economy has actually added jobs every month this year (see Exhibit 1)…

Exhibit 1: Non-farm Payrolls Excluding Census Impact

Source: Bureau of Labor Statistics, Fisher Investments, as of July 2010. 

…and private payrolls have grown every month in 2010, showing it has not been ex-Census government growth creating jobs. (See Exhibit 2.)

Exhibit 2: US Private Payrolls—Monthly Change

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.  

The "JOLT" Interpretation

Since the end of 2000, the BLS has provided an alternate, thinly reported dataset called the Job Openings and Labor Turnover report, or JOLT. JOLT uses a separate sample set than the BLS headline survey (but similar data-gathering techniques) and looks at the number of job openings at the end of a month and the number of hires and separations during the month. "Separations" are further broken into quits, layoffs and discharges, and other (which includes retirements). JOLT consistently shows an improving picture for the job market. 

Job openings data suggests that companies have been expanding their attempts to hire all year (Exhibit 3):

Exhibit 3: US Job Openings

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.

The labor market still has slack, but it has been taking longer to fill positions since August 2009 (Exhibit 4):

Exhibit 4: Average Days to Fill a Position*

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.

Job creation, as measured by JOLT data, has generally been positive this year, with averages rising to levels prevalent early in the last expansion (Exhibit 5):

Exhibit 5: "JOLT" Net Job Creation

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.

The negative impact from layoffs as companies try to cut costs has been diminishing (Exhibit 6):

Exhibit 6: Layoffs and Firings as a % of Total Separations

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.

…as layoff levels have normalized (Exhibit 7):

Exhibit 7: US Layoffs & Dismissals

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.

…and, for the first time since 2006, the number of people willing to quit their job is rising in 2010, suggesting people are becoming more comfortable with their ability to find new work (Exhibit 8):

Exhibit 8: US Job Quits

Source: Bureau of Labor Statistics, Thomson Reuters, Fisher Investments, as of July 2010.  

The recession ended in June 2009, according to the National Bureau for Economic Research (NBER), official arbiter of economic cycle history. Though it may not feel like it for many who have been looking for work over the past year, the NBER also noted headline measures of employment reached a trough in December 2009. This presumably came as a surprise to many who rely on traditional media, as this would not necessarily be evident unless you adjust headline measures for census distortions or examine alternate data. Looking past the headlines, a wide range of data confirm that the economy has been creating jobs this year. That should come as welcome news to those who believe (generally backward in our view) that you can't have a recovery until you have more people employed.