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A Continuation of the Plow-Horse Economy



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Nonfarm payrolls increased a solid 146,000 in November, beating the gain predicted by all 91 economic groups that made a forecast. Obviously, Hurricane Sandy didn’t have as much impact as everyone thought.

Although payrolls were revised down 49,000 for September/October, almost all of that downward revision was for government, not the private sector. Payroll gains have averaged 157,000 per month in the past year, so despite Sandy we ended up right near the trend.

Given today’s technological advances, we should be doing much better, more like 300,000 jobs per month like in the 1990s. What’s holding us back from much faster gains is the huge increase in the size of government, particularly transfer payments, over the past several years.

Civilian employment, an alternative measure of jobs that includes small-business startups, declined 122,000 in November, but this series is volatile from month to month and follows a gain of 1.3 million in September/October. Similarly, the labor force dropped 350,000 in November after a gain of 1 million in the past two months. As a result of the drop in the labor force, the unemployment rate fell to 7.7 percent (7.746 percent unrounded). However, the trend decline in unemployment is not due to a shrinking labor force. The labor force is still up 1 million in the past year while the jobless rate is down a full percentage point.

Other figures from today’s report were mixed. Total hours worked were up 0.2 percent in November and 1.8 percent from a year ago. Average hourly earnings were up 0.2 percent in November and 1.7 percent from a year ago. As a result, total cash earnings (based on earnings and hours) are up 3.5 percent from a year ago (about 1.7 percent when adjusted for inflation), so consumers have room to increase spending. The bottom line remains that today’s report shows a continuation of the plow-horse economy.

In other recent news on the labor market, initial unemployment claims dropped 25,000 last week to 370,000. Continuing claims for regular state benefits dropped 100,000 to 3.21 million. These figures suggest payrolls will expand in December at a pace at or above the recent trend.



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