Encouraging News on Jobs and Joblessness

Payroll employment continued to increase and joblessness fell in November, providing fresh evidence that the health of the economy and the labor market is improving. For the fourth successive month both the employer payroll survey and the household survey showed gains in employment. The jump in employment in the household survey was once again considerably faster than it was in the employer survey (+278,000 versus +120,000). Over the past four months employment gains in the household survey have outpaced the increase in payroll jobs by 750,000 (+1.28 million versus +0.53 million). Though the gap may be puzzling, both surveys now show that employment gains are occurring fast enough to push down the unemployment rate.

Taking a longer term view, the two surveys show a comparable rise in employment over the past year. From December 2010 through November, the household survey indicates that the number of adults holding jobs rose 1.37 million. The employer survey shows that public and private payrolls increased 1.45 million. There were 14.5 million unemployed Americans last December, so the pace of job growth seems painfully slow. Nonetheless, the unemployment rate is edging down. It fell 0.4 percentage points to 8.6% in November, reaching its lowest level since March 2009.

Most of the unemployment decline in November was due to a drop in the size of the labor force rather than an increase in the number of people who report holding a job. Over the past four months, however, the size of the labor force has grown about 164,000 a month, a little faster than the growth in the adult population we would expect to be in the labor force. Over those four months, all of the improvement in the unemployment rate has been due to an increase in the number of Americans who say they are employed.

The payroll survey sheds light on the sectors that are generating job gains and those that remain weak. As has been true in every month but two since June 2010, all of the employment gains occurred in the private sector. Since December 2010 public-sector payrolls have shrunk about 24,000 a month, and they declined another 20,000 in November. The construction industry also remains very weak. On a seasonally adjusted basis employment in the building industry has essentially flat-lined since early in the year. After the end of the last economic expansion in December 2007 construction employment tumbled more than one-quarter, and there has been no rebound since the recovery began.

Employment gains have been more robust in retail trade, professional and business services, private education, health care services, and lodging and food services, all of which saw notable job gains in November. For the fifth consecutive month the temporary help services industry also saw a rise in payrolls. This industry, which is a component of professional and business services, is particularly sensitive to employer needs for extra workers. Payroll growth in temporary help services may signal future job growth in the wider economy.

The drop in the size of the labor force, even if it is only temporary, should serve as a reminder that there are millions of adults who would be looking for work or gainfully employed if we were nearer to full employment. Since the end of the last economic expansion the labor force participation rate has fallen 2.0 percentage points; it now stands at 64%. The current participation rate is only 0.1% above a 27-year low, one that was attained in July of this year. In a healthier job market the participation rate would be at least 1.5% higher. Even though the job market is healthier than it was earlier this year, it is still a long way away from robust health.