Markets hoped that December’s payroll report would mark a breakthrough for the US economy’s recovery, with a surge in private job creation towards 200,000 – a level that would finally put a dent in the unemployment rate.
Instead they got a murky mixture of a report, prompting one economist, Rob Carnell of ING Bank, to call it an “utter mess” and question why markets focus so much on payrolls at all.
The problem is that the monthly payrolls report contains two different measures – a survey of households and a survey of employers – and in December they pointed in different directions.
The employment survey, the normal focus of attention, showed overall growth in payrolls of only 103,000. That was well below expectations, especially after a disappointing November report and a remarkably high estimate from private- sector payroll processor ADP earlier this week.
Yet the household survey, from which the unemployment rate is calculated, sent a completely different message. It showed an extra 297,000 people in jobs and 260,000 fewer people in the labour force. The combination of the two was enough to cause a drop in the unemployment rate from 9.8 to 9.4 per cent.
The reality – taking the trend in both measures and other recent data together – is likely to be somewhere in between. Jobs growth is picking up a bit to more than 100,000 a month but still shows no sign of a dramatic acceleration.
Ben Bernanke, Federal Reserve chairman, struck a similar note in testimony to Congress prepared before the release of the payrolls data. “Although recent indicators of spending and production have generally been encouraging, conditions in the labour market have improved only modestly at best,” Mr Bernanke said.
Most analysts attribute the fall in labour force participation and therefore the fall in the unemployment rate, to the expiry of long-term unemployment benefits in December.
If you no longer receive unemployment benefits, the theory goes, then you no longer have any reason to tell a survey you are actively looking for work. The number of “discouraged workers”, who say that they are no longer looking for a job because they do not think they can find one, was 1.3m in December.
Congress has since renewed long-term unemployment benefits. A likely consequence is that the size of the labour force will bounce back in January, reversing the fall in the unemployment rate.
A further disappointment was in the average duration of a spell of unemployment, which rose from 21.7 to 22.4 weeks, suggesting that those people who are finding jobs have not been out of work for long.