I just posted this at CBS News:
The Department of Labor released the employment report on Friday, and it shows 120,000 jobs created in the month of November, and the unemployment rate falling from 9.0 percent to 8.6 percent.
At first glance the fall in the unemployment rate seems like good news, but a closer look at the numbers reveals some weakness in the report.
First, note that depending upon which estimates you look at, it takes from 90,000-125,000 jobs just to keep up with the growth in the population. Thus, the 120,000 jobs that were created in November is enough to keep the unemployment rate from going up, but it is not enough by itself to absorb all the new workers entering the labor force and at the same time reduce the fraction of people that are currently unemployed. So the fall in the unemployment rate cannot be attributed to robust job growth.
Second, the report shows a decline in the labor force of 315,000 for November, and about half of the decline is attributed to discouraged workers giving up the search for a job. This exit of workers rather than job creation is the main source of the fall in the unemployment rate, and since so much of it is from discouraged workers this is not an encouraging development. Note, however, that there is a lot of month to month variability in the labor force participation numbers, and some of this may simply be month to month noise in the measurement.
Third, many of the unemployment duration numbers continue to increase. Average search duration reached a new peak for this downturn of 40.9 weeks, and hence long-term unemployment is getting worse, not better.
Fourth, many of the jobs that were created are in the retail sector. Thus, while some workers are finding new jobs, the new employment does not, in general, pay as well as previous employment. In addition, if the seasonal factors are different this year, e.g. if some of this is hiring for the holidays that seasonal adjustment procedures miss, then the picture is even weaker than the numbers suggest.
There are positive trends in this report as well. For example the number of people working part-time involuntarily fell by 374,000, employment in construction increased, and employment in manufacturing held its own, but there is a reason to point out the weak points in the report. Congress is considering two initiatives, maintaining or even increasing the payroll tax cut enacted to fight the recession, and an extension of unemployment benefits. If this report is interpreted as unambiguous good news and a sign that things are getting better at a relatively rapid pace -- at .4 percent decline per month the unemployment rate would fall at a fairly rapid pace over a year -- then Congress may not feel as much pressure to extend the tax cuts and unemployment benefits. It's something they'd rather not do, and they are looking for excuses that avoid the need to make tough decisions. But the problems for the labor market are far from over and we could use some insurance against the risks from Europe, so now is not the time to conclude that our troubles are over and we can turn our attention to other things. It's been nearly three years since Ben Bernanke first talked about green shoots, and that was used as a reason to pursue less aggressive monetary and fiscal policy than we needed, and we should avoid making the same mistake again. Maybe the green shoots are real this time -- I certainly hope that they are -- but it's too early to be certain, and it would be a mistake for policymakers to conclude that the labor market is on its way to a healthy recovery and no longer needs their help.