Labor Market Remains Weak

While the headlines try to spin today's employment numbers as strong, they will likely ignore the fact that early stages of the liquidity driven recovery remain comparatively weak. Roughly 1.1 million jobs were created in 2010. This represents a 45% reduction in total job creation in comparison 2004. In addition, over 500,000 thousand jobs, 45% of the total jobs created, were estimated by the birth/death model (BDM). In other words, the reliance of job creation on BDM also increased in comparison to 2004.

Birth/Death Model (BDM) Contribution to Nonfarm Net Payrolls (NFP) Added/(Lost):


What really paints the picture of labor and economic weakness is the jobs creation histogram (JCH). The jobs creation histogram measures the number of jobs created or destroyed relative to the labor force expansion or contraction. Straight to the point, the number of jobs created has been unable to keep pace with the labor force demands since 2007. Yes, that's 2007. One of the ways the household employment survey keeps the unemployment rate below 10%, reported at 9.4% today, is to reclassify the number of workers within the civilian labor force. In other words, they modify the denominator to influence the calculation. The JCH was specifically created to remove statistical ‘massages’ (bias) from the study of labor market trends.

Job Creation Histogram (JCH): Net Nonfarm Payrolls Added/(Lost) less Civilian Labor Force Added/(Lost), 12 Month Average:


Headline: Unemployment rate falls to 9.4 percent, hiring up

The nation's unemployment rate dropped to 9.4 percent last month, its lowest level in 19 months. That was because more people found jobs, but also because some people gave up on their job searches.

The Labor Department says employers added 103,000 jobs in December, an improvement from November's revised total of 71,000 but far below most analysts' expectations.