A few days ago I posted about the ADP jobs numbers and noted while the numbers looked good, there were two details that need to be closely considered before we get ahead of ourselves about recovery prospects. The first of these was the issue of Labor Participation Rate and the second was the seasonality of hiring bumps this time of year.
With regard to the first issue, I noted that “A flat unemployment number but increasing labor participation rate would mean that more discouraged workers are successfully reentering the workforce.” Apparently not enough reporters understand this issue because quite a few articles from the press seem to be ignoring the fact that the labor participation rate actually went down by .2 percent. Had the participation rate remained steady at 64.2 percent, CitiGroup economists estimate that the unemployment rate would not have dropped from 9.0 percent to 8.6 percent, but would instead be closer to 8.8 percent. Yet even this number is misleading due to the already depressed Participation Rate. As I noted in my previous post, the CBO estimates that this rate should be closer to 64.6 percent. Stated more simply, there are almost a 1.5 million workers who have “opted out” and are neither employed nor looking for work.
The implications here are fairly obvious – a simultaneous drop in participation rate *and* unemployment means that the unemployment numbers will eventually need to reabsorb the disenfranchised. As noted on CNBC:
“When the unemployment rate declines, we want to see both employment and participation increase as discouraged workers return to the labor force. Today, we got the former, but not the latter, making the 0.4 percent drop look a bit suspect,” Neil Dutta, US economist at Bank of America Merrill Lynch, told clients. “We would not be surprised to see the unemployment rate give back some of its decline in the coming month(s).”
Another reason for some “give back” on unemployment is the seasonal nature of these hires. Based on an analysis of the hiring patterns of the top retailers in our system, the seasonal hiring bump in November was around 52,000 hires. In other words, the retailers who use the Taleo Recruiting solution accounted for around 37 percent of the 140,000 net new, private sector hires in November. Given this, it’s worth looking at the typical hiring patterns for these clients after the holidays.
You’ll notice in the chart to the left that hiring quickly declines and levels off in December and January. In other words, more than a third of the November increase in job openings is coming from temporary seasonal jobs to support retailers through the holidays, not from a sustained growth in long-term, full-time jobs. This also means that if we accept the premise that it takes 90,000-120,000 new jobs per month to keep up with population growth, then we’re actually still just treading water, and just barely at that.
There is a plus side to this. You’ll also note that retail hiring for our clients show a steady increase since January 2010. Assuming stable attrition and separations, this suggests a continuing increase in “net new” hires. There are also some nice “silver lining” numbers in the decrease of involuntary part-time workers noted in the BLS release. That said, the unemployment decline in November and the increase in jobs seem to be artifacts of seasonal hiring and a decrease in labor participation rates, rather than a healthy growth in long-term, full-time employment. Hopefully I’ll be proven wrong in the coming few months, but until labor participation rates normalize, and we see a sustained, multi-month growth in hiring above the 150,000 range, I’m not planning any celebrations.
