Market Insights / Commentary

Just how strong is the job market, anyway?

By David Russell

Just how strong is the job market, anyway? Readers may have grown accustomed to phrases like “employment is at long-term highs,” or the best levels in over a decade. That makes it a good time to review the bigger picture, especially because almost every report since mid-January has beaten expectations. There are some important headlines this week, as well.

General measures of joblessness — workers out of work — have trended down since the end of 2009. Unemployment, calculated with surveys asking people their status, is one important monthly number. The other is weekly jobless claims, based on the number of people seeking unemployment benefits from their respective states. This second figure just touched its lowest level since 1969. Pretty darned good. (Another report is due later this morning.)

Compensation is the other big item. Simple numbers like hourly wages show the trend clearly enough, and anecdotal evidence has mounted this week. Quarterly reports from Target (TGT) and Ross Stores (ROST) showed both retailers boosting wages. The Federal Reserve’s Beige Book survey of conditions across the country also cited “persistent labor market tightness and brisk demand for qualified workers, as well as increased activity at staffing placement services.”

Don’t forget about the Bureau of Labor Statistics’ productivity report, with fourth-quarter unit labor costs revised up more than expected to 2.5 percent. That’s especially noteworthy because it covered a period of time mostly before companies responded to tax cuts with big pay raises.

Next, the less-than-stellar item: Outright job gains. Only nine times this decade have non-farm payrolls increased by more than 300,000 in a month. In contrast, the matching spell in the late 1990s saw 28 months above that level. But it might not be an apples-to-apples comparison because most jobs now require unique skills, which curbs large-scale mass hiring. Years of cost-cutting and data-driven efficiency gains has also trained management teams to invest in technology before adding workers.

Then there’s a question of quantity versus quality, like in December’s non-farm payrolls report. The overall number missed as retailers hemorrhaged workers. But those tend to be lower paying jobs with less positive impact on the economy. Meanwhile, factories and construction jobs have steadily gained. (Those have a multiplier effect, creating other demand in warehouses, transportation, etc.)

Going forward there could be fuel for even more gains — especially in construction and government. As the media reports incessantly, the U.S. lacks affordable homes. Housing starts are also nowhere near overheating based on history, so it’s not hard to envision more employment there. Secondly, data going back to World War II shows state and local governments usually increase hiring in the second half of an economic expansion. (They lag because their coffers fill as the economy improves.) While recent changes in federal-tax deductions may hamper some state spending in coming years, so far this trend has yet to take hold and things could still get better before they get worse.

Those are just a few things to bear in mind as we prepare for the big kahuna of non-farm payrolls tomorrow morning.

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