Labor market laments

Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. In December, job losses were large and widespread across most major industry sectors.

Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3 percentage points. The employment-population ratio fell to 61.0 percent in December, and was down 1.7 percentage points in 2008.

Over the past 4 months, payroll employment has fallen by 1.9 million, or 1.4 percent. In December, large job losses continued in manufacturing, construction, and employment services, while health care continued to add jobs.

The index of aggregate weekly hours of production and nonsupervisory workers on private nonfarm payrolls fell by 1.1 percent in December and has dropped 4.0 percent since peaking in December 2007.

My own composite index of current labor market indicators dropped 3.2 percent to 83.2 (2007=100) in December. All five indicators had notable declines. From largest contributor to the overall fall in the index, the indicators are goods-producing employment, workers unemployed 15 weeks or more as a percent of the labor force, employment-to-population ratio, aggregate hours index, and the unemployment rate.

Didn’t take much analytical horsepower to decide this was a “bad news” release. The running average of my nascent good news diffusion index is 10.0 percent in January.

It may be noteworthy that my labor market index went beyond 4 points below its trailing 6-month moving average. In past recessions, this has indicated what stock market technicians might call an “oversold” labor market and the index has troughed very quickly after dropping so far below that rough measure of short-term trend. Interestingly enough, the trough in this divergence has exactly coincided with the trough of the recession in half the recessions it encompasses in its history. (It missed by one month in 1975 and by greater leads in 1970 and 1982.)

The Bureau of Labor Statistics will issue the next Employment Situation report on Friday, February 6.