US November Jobs Report 2012: Not As Good As It Looks, And Watch Out For Sandy-Related Revisions In Coming Months

Payrolls rose more than anticipated in November and the unemployment rate fell to the lowest level since December 2008, the Labor Department said Friday, adding that Superstorm Sandy did not “substantively” impact the labor market.

However, economists believe policymakers will not take much notice of the report, which they say will be revised downward to show Sandy-related impact in the coming months. The Federal Reserve is expected to announcement further stimulus measures to stimulate the economy when they meet on Dec. 11-12.

Total nonfarm employment increased by 146,000 jobs last month. Economists polled by Reuters had expected payrolls to show a gain of 93,000 jobs.

“I don’t think the numbers are as good as they appear to be on the face,” said Gus Faucher, senior economist at PNC Financial Services Group. “I would not be all surprised if we get some Sandy-related downward revisions for November next month, when they [Labor Department] have a better opportunity to survey some of those firms [in the storm affected areas].”

The jobless rate fell to 7.7 percent in November, from 7.9 percent in October, mainly because more people gave up the search for work, which does not bode well for the economy.

“Even though the unemployment rate fell, it fell for the wrong reason, and it raises some questions about the labor market,” Faucher said, referring to the big drop in the labor force, which shrank by 350,000 last month.

The participation rate, the share of working-age Americans either holding or seeking jobs, fell by 0.2 percentage point in November, to 63.6 percent, offsetting the gain from October and is very close to the low of 63.5 percent seen in August.

By contrast, from between 2002 and 2008, the labor force participation rate was around 66 percent. Even in 2011, it was around 64 percent.

If we apply the earlier participation rates to the unemployment rate, November’s unemployment rate would be much higher than 7.7 percent.

Despite the Labor Department dismissing the impact of Sandy on payrolls, it was notable that, according to the household survey, 369,000 people couldn't work because of the weather last month, compared with about 64,000 in a normal November.

“That spike largely explains both the dip in household employment and the labor force, so expect a rebound in December as those people get back to work,” notes Paul Ashworth, chief U.S. economist at Capital Economics.

While November's report beat expectations, revisions for the prior two months raise concerns. October was revised down to 138,000, from the initially reported 171,000 figure. And September was also moved lower to 132,000 from 148,000.

“Whereas before, we are averaging about 160,000 a month, now, those two months are about 135,000,” Faucher said. “So, substantial downward revisions there.”

Fiscal Cliff

The looming fiscal cliff is probably having a growing impact on employment as well, with employers worried that Congress might not reach an agreement, which would plunge the U.S. economy into recession next year.

There are about 10 working days between now and Christmas, not much time to solve the fiscal cliff, let alone put the U.S. on a sustainable fiscal path. Actually, the last Congressional session of the year is scheduled for December 14, though most experts think Congress will be forced to work past that date.

Businesses are already showing a reluctance to spend and hire, fearful the government may fail to steer clear of the $600 billion in automatic tax hikes and government spending cuts set to take hold at the start of 2013.

The Federal Reserve’s November Beige Book, a report on current economic conditions, particularly noted that "contacts in a number of Districts expressed concern and uncertainty about the federal budget, especially fiscal cliff."

“No obvious impact from the looming fiscal cliff yet [in the November jobs report], but it could still have a greater effect on December's figures,” Ashworth said.

Federal Reserve

In September, the Federal Reserve launched a program to buy $40 billion worth of mortgage-backed securities every month and said it would keep buying until there was a sustained improvement in the jobs market. Those purchases come on top of the $45 billion a month the Fed is buying in long-term Treasuries with proceeds from sales of shorter-term debt.

A majority, 27 of 29 economists in a Reuters poll, said the Fed will buy more Treasuries when its current Operation Twist program ends in December. Median estimates were for monthly buys of $40 billion worth of bonds.

“Even if the report has been really good, or really weak, I don’t think it would have much impact on what the Fed is doing,” Faucher said. “They’ve made it really clear that what they see in the labor market is still not what they are looking for, and so it’s going to take more than one month of data, particularly data that’s volatile due to Sandy, to change their view on things.”

“It’s just difficult for the Fed to read anything into this month’s jobs report, therefore, I think the Fed will probably discount this report,” Faucher added. “So I would expect them to announce that they are going to go ahead and expand their balance sheet and purchase long-term treasuries [in the upcoming policy meeting.]”

The U.S. economy is expected to grow at a 1.6 percent annualized rate in the fourth quarter, according to the median forecast of over 60 economists polled by Reuters in November. That's down from the 1.8 percent in the October poll. Many economists say the sub-2 percent growth rate is too slow to make much of a dent in unemployment.