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The Employment Situation, December 2009

Nonfarm payroll employment came in weaker than expected, dropping 85,000 jobs in December to conclude a year totaling nearly 4.2 million net job losses. Downward revision to October’s figure roughly cancelled out the upward revision made to November’s preliminary estimate, leaving those months’ respective employment change at −127,000 and 4,000. With the exception of November, the U.S. economy has lost jobs consistently all the way back to December 2007, but the losses have steadily slowed over much of 2009. Average losses lessened from 428,000 in the second quarter to 199,000 in the third quarter, and now to 69,000 in the final quarter of the year. The unemployment rate was unchanged at 10.0 percent. However, since labor force participation fell precipitously and 661,000 people exited the labor force, the unemployment rate is surely underestimating labor market slack. The employment-to-population ratio continued its long decline, slipping from 58.5 percent to 58.2 percent in December, its lowest since August 1983. It has now dropped 4.5 percentage points since the start of the recession.

Average Nonfarm Employment Change

Goods-producing industries shed 81,000 jobs on net in December after dropping by 58,000 in November. Construction shed 53,000 jobs, roughly shared between the residential and nonresidential sides. The manufacturing industry had its best month since December 2007 while still losing a massive 27,000 jobs. In terms of absolute losses, manufacturing continues to be one of the main drags on the overall employment count, but it is also one of the most improved industries since the beginning of the year.

Employment in service-providing industries declined mildly, by 4,000 jobs, after seeing a strong November gain of 62,000. The largest increase within services came from the professional and business services industry, which contributed 50,000 jobs after adding an even heftier 89,000 the previous month. It has been the strongest industry in the past couple of reports and has also seen great improvement since the start of 2009, when it had lost as many as 176,000 workers in a single month. Most of the industry’s strength over the past several reports has stemmed from temporary help services, which added 46,500 jobs last month and has seen five consecutive gains. A possible explanation for this is that employers may be looking to see whether a recovery will indeed materialize, choosing to increase production with part-time workers before committing to full-time hires. Other industries contributing positively last month include education and health, which gained 35,000, and financial activities, which added 4,000 jobs in its first increase since July 2007. Healthcare is the only sector not to see any net job losses the entire duration of the recession.

The main negatives within services came from trade, transportation, and utilities (−37,000), leisure and hospitality (−25,000), government (−21,000), and information (−6,000). Retail trade gave its best performance since January 2008, losing a much smaller 10,000 jobs compared to losses nearing six digits last November. Government-sector activity has been sporadic this past year, seeing as many months of gains as losses. Losses trumped, however, totaling 205,000 during 2009, while gains amounted to only 140,000.

Labor Market Conditions and Revisions

  Average monthly change (Thousands of employees, NAICS)
October current Revision to October November current Revision to November December current
Payroll Employment −127 −16 4 15 −85
Goods-producing −109 4 −58 11 −81
Construction −56 0 −27 0 −53
Heavy and civil engineering −14.2 −1 2 −3 −18
Residentiala −13.5 −5 −4 −1 −19
Nonresidentialb −28.3 6 −25 4 −17
Manufacturing −48 3 −35 6 −27
Durable goods −35 2 −29 4 −16
Nondurable goods −13 1 −6 2 −11
Service-providing −18 −20 62 4 −4
Retail trade −40 5 −14 1 −10
Financial activitiesc −6 4 −6 4 4
PBSd 33 −5 89 3 50
Temporary help services 44 0 55 3 47
Education and health services 36 −4 37 −3 35
Leisure and hospitality −42 −6 −13 −2 −25
Government 36 −10 4 −3 −21
Local educational services 31 −2 15 3 −1
  1. Includes construction of residential buildings and residential specialty trade contractors.
  2. Includes construction of nonresidential buildings and nonresidential specialty trade contractors.
  3. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
  4. PBS is professional business services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
  5. Source: Bureau of Labor Statistics.

The Diffusion Index of Employment Change, which tracks the percentage of industries with increasing employment, slipped 2.4 points, from 42.4 to 40.0. While still beneath the expansionary threshold of 50, the index has primarily expanded since April and has climbed from its record low of 19.6 in March.

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