Why November Unemployment Declined to 7.7%

Virtually all economists predicted the November Jobs Report would show only 80,000 jobs were created in November and the unemployment rate increased to 8%. The pessimistic forecast was based on the anticipated effects of hurricane Sandy, which were expected to be significant.

The Labor Department’s November Jobs Report has proven them wrong!  The economy created 146,000 jobs in November; exceeding the amount created in October, which was adjusted downward to 138,000. Furthermore, the unemployment rate declined to 7.7%, from its November level of 7.9%.

Most jobs were created in retail trade (52,600), leisure and hospitality (23,000), health care (22,000), and temporary help services (18,000).

During November, the economy lost 20,000 construction jobs and 7000 manufacturing jobs. Those losses can probably be attributed to Hurricane Sandy; since they represent a significant change from the previous month of October.

Here is why the employment report was better than expected:

  1. Hurricane Sandy had a milder and more transitory effect on the economy than originally anticipated.
  2. Holiday sales and employment, especially online sales, have been strong. Retail sales increased 5.6%, online sales increased 12%, and retail employment increased 4.8%.
  3. The economy is much stronger than commonly perceived. The third quarter GDP growth of 2.7% was not a fluke. Also, auto sales have reached 15.5 million units and the housing sector is continuing to recover nicely.
  4. The labor force declined by 350,000 workers, after increasing by 578,000 the previous month. When people drop out of the labor market, they are not counted among the unemployed. This contributed to a lower than expected unemployment rate

Noteworthy among the data is the white unemployment rate, which declined to 6.8% (from its October level of 7.0%).

Black unemployment declined to 13.2%, from its October level of 14.3%. However, it should also be noted that 306,000 of the decline in the labor force is attributable to blacks, representing 87% of the total change. This means that a portion of the decline in the black unemployment rate was caused by the large number of blacks who left the labor market, and are not counted among the unemployed.

Unemployment among Latinos remained constant at 10.0%.

What are the implications of the stronger-than-expected jobs report?

  •  Should we hit the fiscal cliff, the effects will be milder than most analysts have projected, i.e. the sky will not fall.
  • Congressional leaders should act more boldly to balance the budget, and not kick the can down the road.