November Jobs Report

On Dec. 6, ADP said “private-sector jobs rise 158,000” in November: “Hiring pace is consistent with ‘modestly below-trend’ economic growth.”

Based on a string of huge misses by ADP, I predicted the official November numbers would badly miss as well, coming in at 88,000. Bart at predicted 116,500. I offered to wager a box of Omaha Steaks (10-oz. Rib-eyes) on the outcome. Fortunately for me, Bart declined. ADP was indeed high, but I would have lost the bet.

Here are the official employment numbers for November 2006:

“Nonfarm payroll employment rose by 132,000 in November, and the unemployment rate was essentially unchanged at 4.5%, the Bureau of Labor Statistics of the U.S. Department of Labor reported Dec. 8. Job gains continued in several service-providing industries, including professional and business services, food services, and health care. Employment declined in construction and manufacturing…

“Industry Payroll Employment (Establishment Survey Data)

“Total nonfarm payroll employment rose by 132,000 in November, to 136 million. This followed increases of 203,000 in September and 79,000 in October (as revised). Thus far this year, payroll employment has grown by an average of 149,000 per month. In November, employment rose in several service-providing industries and in mining; employment declined in construction and continued to trend downward in manufacturing.

“Professional and business services employment increased by 43,000 in November and has risen by 426,000 over the year. Job growth has occurred in a number of industries, including architectural and engineering services, management consulting, and computer systems design. Employment in temporary help services was flat over the month and has changed little since January.

“Health care employment rose by 28,000 in November. Hospitals and doctors’ offices each added 6,000 jobs. Over the year, health care employment has increased by 309,000.

“In leisure and hospitality, employment growth continued in food services and drinking places. This industry added 34,000 jobs in November, raising total job gains over the last 12 months to 295,000.

“Employment in wholesale trade continued to trend up in November. Employment in this industry has risen by 288,000 since its most recent low in August 2003. Within retail trade, employment grew over the month in clothing and accessory stores; health and personal care stores; sporting goods, hobby, book, and music stores; and nonstore retailers (which include catalog and Internet retailers). General merchandise stores continued to lose jobs (-12,000 after seasonal adjustment); since August 2005, employment in this industry has decreased by 107,000.

“In the goods-producing sector, mining employment grew by 4,000 in November with gains in support activities for oil and gas. Employment in mining has grown by 136,000 since its most recent low in April 2003.

“Construction employment declined by 29,000 in November, following a loss of similar size in October. The November decline was spread across all component industries. Since peaking in February of this year, employment in residential specialty trades was down by 109,000. Employment in nonresidential specialty trades edged down in November, after trending up during the first 10 months of the year.

“Manufacturing employment continued to trend down (-15,000) in November. Motor vehicles and parts lost 7,000 jobs. Employment continued to fall in two construction-related industries: wood products (-6,000) and furniture and related products (-5,000). Computer and electronic products manufacturing added 5,000 jobs over the month.”

The report shows that health care remains strong, although it is very difficult to say what percentage of those jobs are in a high-paying category. Doctors and nurses would generally be high-paying positions, but employment in nursing homes and social services may not be. Leisure and hospitality jobs were also strong, but it is safe to assume that most of those are not high-paying jobs. Professional and business services expanded very nicely, and those indeed may be better-than-average-paying jobs, but manufacturing and construction jobs contracted, and those are also better-than-average-paying jobs.

Given that it takes about 150,000 jobs just to break even with immigration and population increases, this was not really a good showing, but, arguably, not a disaster.

Birth/Death Assumptions

Following are the latest business birth/death assumptions:


The above chart shows 29,000 new jobs were assumed by the government to have been created in November. Click on the above link for an explanation of how business births and deaths figure into jobs numbers.

Construction Jobs

One of the more interesting things in the report was, “Employment in nonresidential specialty trades edged down in November, after trending up during the first 10 months of the year.”

Following is a chart of construction jobs (both residential and nonresidential) for November 2006:

Before discussing construction, please note the vertical red oval. It shows that 40,000 goods-producing jobs were lost. It also shows that of the 132,000 jobs that were created, 13.6% (18,000) jobs were government jobs. The last thing we need is more unproductive government jobs. Taking those two numbers into consideration, this was a fairly weak set of jobs numbers, and supportive of the idea that we are in an economic slowdown. The massively inverted yield curve also suggests that not only is a slowdown on its way, but that an out-and-out recession also is coming.

It is simply illogical to assume that businesses would even want to keep expanding in the face of a consumer-led recession. Even if they did, it is important to remember that consumer spending is 70-75% of the economy (and possibly higher in THIS economy). With that as a backdrop, it is also illogical to expect that corporate spending can possibly pick up the slack even IF businesses were to keep expanding in the face of a consumer slowdown.

Nonresidential building has now shown a four-month steady decline in jobs, even as nonresidential trade jobs are holding up over the same four-month period. This divergence between trade jobs and building jobs is unlikely to hold. With an October-November decline in nonconstruction trade jobs, it is possible that this divergence is now being resolved, but we must wait and see if the data point on trade jobs is an outlier.

What we can see for sure is that huge cracks are starting to appear in the myth that “corporate expansion is likely to pick up where consumer spending left off.” In the dot-com bust of 2000, strength in consumer spending did pick up when corporate spending was slashed, but it is simply illogical to expect the opposite to be possible.

When corporate expansion does crack, it will be part of a “second wave down” in construction and jobs, and will have a far greater economic impact than the decline so far in residential construction.

Bernanke’s Box

In “Bernanke’s Box,” I asked:

“Can someone please tell me what we need more of?

“Home Depots?
Pizza Huts?
Restaurants of any kind?
Strip malls?
Furniture stores?
Nail salons?
Office supply stores?
Grocery stores?
Appliance stores?
Auto dealers?
What? What? What?”

Nothing is what. There is a veritable glut of every kind of store imaginable. The construction of all those places provided jobs.

The staffing of all those stores provided jobs. The bottom line is there is simply no need for businesses to expand into a consumer slowdown. It would not make economic sense to do so, and that is arguably why corporate insiders are bailing at a record pace (an 18-year high), even as stock buybacks continue unabated.

Commercial construction always lags residential construction, simply because Wal-Marts, Pizza Huts, Home Depots, nail salons, etc., finish their build-out after residential areas are built. This is only logical, but the mantra being sung by Wall Street pundits is that somehow corporate spending will save the day.

Mergers and Cutbacks

Watch what insiders and corporations are doing, not what they are saying. What corporations are doing is wasting money at an amazing pace on stock buybacks, while cutting back on existing expansion plans.

Yes, we are seeing mergers and proposed mergers, especially in the banking industry, as noted by the headline “Bank of America May Bid for U.K. Bank Barclays”:

“Biggest financial-services deal ever would create top global bank

“Bank of America could be about to make a bid for U.K. retail and investment-banking group Barclays in a deal that would create the world’s biggest bank, according to analysts at Merrill Lynch.

“‘Bank of America has previously indicated that the next phase of its expansion is to become a leading global commercial and investment bank. In order to achieve that goal, we believe Bank of America is very interested in acquiring Barclays,’ the broker said in a note to clients.”

The important point to remember about these mergers and consolidations is that they cost jobs. There have been no estimates so far, but 10,000 would not surprise me at all. We are seeing all kinds of consolidations right now in financial services and subprime mortgage businesses, with some of them being not consolidations, but outright job destructions due to bankruptcy.

In “Bernanke’s Box,” I also noted, Home Depot “Sales Falloff Kills Staff-Increase Plan”:

“Home Depot abruptly shelved a much-touted plan to improve customer service by hiring more store-level employees — just a month after rolling it out…

“The about-face appears to be the result of a sales slowdown that is far more severe than the company anticipated, sources said…

“Rather than hiring additional employees, all stores — even those $40-million-plus high-volume locations — were told to cut staff hours by 200 per week because of falling sales.

“The reason? Sales were falling short of internal projections, the result of a housing market that had stopped booming.”

For Home Depot to go from hiring plans to firing plans in a single month, things must have gone to hell in a handbasket in a hurry. There is no other rational explanation.

In summation, there is not a shred of evidence that suggests corporate spending is about to pick up. There is also not a shred of evidence that suggests that even if it did, it could possibly “take over where consumer spending left off.” The idea is not only illogical, it is unsupported by what is actually happening.

What is happening, however, is subprime lenders are blowing up and throwing more people out of work, furniture stores are blowing up and throwing more people out of work, proposed financial mega-mergers (if they happen) will throw more people out of work, Wal-Mart has recently cut back on expansion plans, Home Depot did an immediate reversal of expansion plans, and now we see a four-month-straight decline in nonresidential building.

The second wave down is coming, and this one will have far more serious consequences.

Mike Shedlock ~ “Mish”
December 11, 2006

The Daily Reckoning