The Corner

Continued Improvements, with Notes of Caution

The labor market continues to improve. Private payrolls increased 140,000 in November and a stronger 182,000 including upward revisions for September and October.

Upward revisions have been a recurring pattern for the past year, which means that if you only look at the initial report for each month you don’t see the full extent of the improvement. For example, private payrolls for September were originally reported up 137,000 but have since been revised to 220,000. The average upward revision in the past year has been about 35,000. Over that period, private payrolls (including revisions) have an average gain of 157,000.

Civilian employment, an alternative measure of jobs that factors in small business start-ups, increased 278,000 in November and is up an average of 178,000 in the past year. Some pessimists say a “birth/death” model is artificially inflating payroll gains, but the employment survey does not use a birth/death model and that survey is even stronger. The gain in civilian employment helped push the unemployment rate down to 8.6 percent. However, the drop in unemployment was also due to a 315,000 decline in the labor force (people working or looking for jobs). As a result, we think a portion of the drop in the jobless rate may reverse next month, but not all of it.

Another cautious note in today’s report was that average hourly earnings dipped 0.1 percent in November, although they are still up 1.8 percent from a year ago. That gain from a year ago, combined with a 2.1 percent increase in the number of hours worked and a slowdown in the pace of debt reduction, is making it easier for consumers to spend. In other recent news, automakers sold cars and light trucks at a 13.6 million annual rate in November, up 2.8 percent from October and 11 percent from a year ago. The economy is still far from operating at its full potential, but it is clearly moving in the right direction.

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