The Jobs Report for January 2010

The Bureau of Labor Statistics (BLS) employment report for January contains mixed signals about the job market’s emergence from the 2008-2009 recession. The household survey showed a sizeable drop in the unemployment rate – down 0.3 percentage points from December 2009 and down 0.4 percentage points since the peak unemployment rate in October. The fall in unemployment cannot be explained by a rise in the number of discouraged workers or any further decline in the labor force participation rate. On the contrary, the household survey shows a rise in the participation rate. The reason unemployment fell is that the number of Americans who report being employed rose substantially. This is heartening news.

A less optimistic picture is revealed by the BLS employer survey. It shows a continued drop in payroll employment. For the second month in a row – and for the 24th month out of the last 25 – the nation’s employers reported lower payrolls. The drop was very small – about 20,000 jobs – and the decline may be reversed when better payroll statistics become available. Nonetheless, the payroll jobs number is the employment indicator most closely watched by investors. It will be seen, correctly, as one more sign of the hesitating  response of employers to increased demand for U.S. goods and services.

Indeed, the payroll employment revisions published by BLS today underscore the severe weakness of the U.S. job market. The new numbers show that private payrolls fell in the recession even faster than previously thought. (The BLS had previously signaled that the revisions would be grim.) The total number of nonfarm jobs in December 2009 was 1.4 million lower than the BLS reported last month. All of the difference is explained by a bigger loss in private payrolls during the recession than was first estimated. The initial BLS estimate showed that private payroll employment fell 6.3% since the recession began. The revision suggests private employment actually shrank 7.4%. Equally worrisome, payroll employment has continued to fall, although slowly, since the economy started to grow last summer.

The revisions in the payroll statistics mean that worker productivity probably jumped even faster last year than shown in the preliminary estimates published by the government. Earlier this week, BLS analysts estimated that the broadest measure of worker productivity increased 5.2% between the fourth quarter of 2008 and the fourth quarter of 2009. Employers achieved this gain by keeping total output nearly constant while slashing the number of payroll jobs and hours needed to produce it. In the last quarter of 2009, a sizeable increase in total output was achieved in spite of shrinking company payrolls and only a slight rise in the total number of hours worked.

The response of private employers to this recession has been to reduce sharply their costs, especially their payroll costs. This strategy has taken a heavy toll on American workers and job seekers. In contrast to employer behavior in Japan and most of western Europe, U.S. employers have been very fast to slash payrolls in the face of perceived weaknesses in current and future demand. Their response has produced a quick rebound in business profitability, but it has also given rise to an unusually steep fall in U.S. employment and a painful increase in the price of being unemployed.