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Economy Added 132,000 Jobs in November

Prof. Peter Morici - 12/11/2006

Friday, the Labor Department reported the economy added 132,000 payroll jobs in November. The consensus forecast and my forecast were 110,000

The revised figure for October jobs growth was 79,000, up from 92,000 estimate issued list month. This 13,000 revision explains most of the difference between the November jobs gain and the consensus of forecasts.

In the third quarter, the economy added 155,000 payroll jobs per month, and October and November jobs growth were decidedly below those of recent months.

Overall, employment is growing more slowly than in the third quarter, when GDP growth was a sluggish 2.1 percent. At the November pace of jobs creation, unemployment will likely rise in the months ahead, and the probability that the economy will slip into recession has grown significantly.

Separately, the household survey, which includes the self employed, indicates an employment gain of 277,000, and the unemployment rate rising to 4.5 percent in November from 4.4 percent in October. My forecast was 4.5 percent.

Differences between the payroll data and household survey likely indicate that many people who have been displaced from positions with regular employers have sought refuge in home-based consulting and blue collar pickup jobs. It is unlikely that the economy, growing at less than a 2.5 percent annual rate, is providing attractive new self-employment prospects for so many workers.

Increasingly the polite answer to what to you do is: “I have a home-based business.” It may be three parts resume distribution and one part work, but it counts as work at the Labor Department.

Many of the newly self-employed are simply underemployed day workers.

The adult labor force participation rate remains well below its first quarter 2000 level. Were the same percentage of adults seeking employment today as in 2000, unemployment would be about six percent.

In November, wages were up 0.2 percent or at about a 2.2 percent annual pace, indicating inflationary pressures from labor markets are moderate.

Employment fell in manufacturing by 15,000 and in construction by 29,000.

Recent reports from the manufacturing sector and the housing markets indicate some contraction is gripping the economy.

Retail sales have slacked off but not turned south; however, the continued surge of imports taps off much of the demand created by these sales for domestic products.

Overall the risk of a recession has risen to 50 percent.

The continuing structural problems at General Motors and Ford, and the reluctance of their top management to address these issues, other than by cutting staff, is a terrible drag on the economy. Over the next two to three years, the U.S. will have to find a way to grow burdened by a downdraft from the consequences of inadequate management in the domestic automobile industry.

The dollar has weakened but mostly against the euro and other currencies where exchange rate movements have minimal effects. Against the important Chinese yuan, the dollar remains too high, and the yuan sets the pattern for other Asian currencies, which are critical to reducing the non-oil trade deficit.

Unless Secretary Paulson finds a way to succeed in talks with China, in a way his predecessor John Snow could not, Americans can expect slow growth and a lousy job market

Federal Reserve happy talk about the solid footing of the economy is just that—happy talk. The Federal Reserve seems intent to risk recession to contain inflation.

Growth will be sub par, in the range of 2.5 percent, without some affirmative actions on the trade deficit or lower interest rates. Slow growth results not from the fundamental physics of the economy but from conscious policy choices at Treasury and the Federal Reserve.

Moderate growth will be good for the stock market. Many U.S. companies now earn significant shares of their profits abroad, even as they jettison workers from good paying jobs at home. The stock market should continue to move higher.

Ordinary workers may wonder why so many on Wall Street are singing “Blues, Nothing but Blue Skies.”

The answer is simple. As Globalization chills the industrial Middle West, IBM, GM, Caterpillar, and others get their sunshine in China.