November Employment and Revised 3rd Qtr 2011 GDP

I’m a few days late but I wanted to note the latest employment (jobs) report and the first revision to 3rd quarter GDP.  There’s really not much news here – it’s the same old story. The economy continues to move along somewhat like  a zombie.  Not really dead, but definitely not anything you could call “living”.  That’s particularly true if you’re one of millions of unemployed who need a job to “make a living” but can’t get one.

CalculatedRisk Blog tells us:

From MarketWatch: U.S. economy adds 120,000 jobs in November

The U.S. gained 120,000 jobs in November and the unemployment rate fell to 8.6% from 9.0%, the Labor Department said Friday. The government also revised jobs data for October and September to show that 72,000 additional jobs were created. … Hiring in October was revised up to 100,000 from 80,000 and the job gains in September were revised up to 210,00 from 158,000. In November, companies in the private sector hired 140,000 workers … Government cut 20,000 jobs

Employment Pop Ratio, participation and unemployment ratesClick on graph for larger image.

The following graph shows the unemployment rate. The unemployment rate declined to 8.6%.

Some of the decline in the unemployment rate was related to a decline in the number of workers in the labor force.

Percent Job Losses During RecessionsThe second graph shows the job losses from the start of the employment recession, in percentage terms. The dotted line is ex-Census hiring.

This was still a weak report, and slightly below consensus.

The headline unemployment rate declining from 9.0% in October to  8.6% in November is deceptive.  It is NOT because economic growth created enough new jobs to start making a significant dent in the millions of unemployed.  Instead it was almost entirely due to the labor force shrinking.  In other words, approximately 300,000 would-be workers abandoned their search in frustration and discouragement.  If the economy starts to grow briskly (not much chance of that happening) then these discouraged and “marginally attached” workers will likely renew their searches and rejoin the work force.

Calculated Risk also tells us how just before Thanksgiving the estimate for 3rd quarter real GDP growth was revised downward.

From the BEA: Gross Domestic Product, Second Quarter 2011 (second estimate

Real gross domestic product — the output of goods and services produced by labor and propertylocated in the United States — increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the “second” estimate released by the Bureau of Economic Analysis.

This was revised down from 2.5% and below the consensus of 2.4%.

The downward revisions was mostly due to a large decline in the “change in real private inventories ” – this subtracted 1.55 percentage points from the third-quarter change in real GDP (second estimate) as opposed to 1.08 percentage points in the advance estimate. Final domestic demand was mostly unchanged (the inventories will probably reverse in Q4). Still sluggish growth …

The relatively large revision came from having better data about the change in business inventories.  In GDP accounting, when a business produces goods it counts as “production” and part of GDP, even if the goods haven’t been sold yet to a final customer.  Additions to inventory then are considered to be a form of “business Investment”.  A decline in inventories tells us that businesses (in aggregate) sold more from their inventories (previous production) than they produced.  A large decline in inventories can be either a good or bad sign.  It’s good if it happens because sales were unexpectedly higher than managements expected.  That would suggest that production would be increased in the next quarter.  On the other hand, a decline in inventories can also be a sign that businesses expect future sales to be weak and so they didn’t produce as much in advance.  We’ll have to see which it is.  Regardless of why the inventory adjustment was so large, a 2.0% real growth rate is unacceptable.  It wouldn’t even be acceptable at full employment, but with 8.6% unemployment it’s totally unacceptable.