Comstock Partners, Inc.
Employment Weak; Unemployment Underestimated
January 10, 2003
Although the decline in December payroll employment of 101,000 was overstated as a result of seasonal adjustment problems in retailing, the number still indicated weakness in the labor market. On a non-seasonally adjusted basis retail employment increased by 162,000 jobs. Since this was only half the number usually hired during the holiday season, the seasonal adjustment resulted in an extra large downward revision to the unadjusted number. This will probably reverse in January as the corresponding layoffs will also be less than usual, resulting in a stronger number when the results are reported in early February.
Despite the distortions, the labor picture is still weak. From May through August employment climbed by a total of 233,000 jobs and then dropped by 204,000 since that time. Even if a January rise completely reverses the December drop, employment would still have declined by about 100,000 over a 5-month period. The average duration of unemployment has climbed to 18.5 weeks in December from 17.4 weeks in the previous month, and 21.8% of the unemployed have been out of work more than six months. Challenger layoff announcements were far higher in the fourth quarter than in the preceding two quarters, and almost as high as the first, indicating even more actual layoffs in the period ahead.
Adding to the malaise, a declining labor force participation rate indicates that the true unemployment is higher than the 6.0% shown by the official figures. The labor force participation rate topped at 67.4% in early 2000 and dropped to 66.3% by December 2002. This means that about 2.3 million people dropped out of the labor force during that period and are no longer counted as unemployed. If these people were still in the labor force, the unemployment rate would now be 7.6% rather than the official 6.0%. It is therefore highly likely that the true extent of unemployment is being seriously underestimated. Along with record debt, declining net worth, and a low savings rate, the overall employment picture continues to undermine the prospects for robust consumer spending in the period ahead.
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