The U.S. economy has recently displayed some more positive signs and appeared to be on the cusp of a more meaningful pickup in jobs. Initial claims for unemployment benefits had fallen in December and the ADP report indicated a rebound in hiring.
Last Friday’s Labor Department report showing that only 103,000 payroll jobs were added thus came as a disappointment even though the two prior months’ data were revised higher. Some of the most sizable job gains occurred in health care and leisure/hospitality, although manufactures added to payrolls for the first time since last July. Temporary help agencies continued to show job gains, as companies have first reached out to those sources before taking on permanent workers.
The unemployment rate fell sharply to 9.4% in December from the prior month’s 9.8% level. This data is based on interviews of households and includes self-employed workers. This survey revealed a strong monthly rise of 297,000 workers, or nearly three times the number based on company payroll reports. A decline in the number of people looking for work also contributed to the jobless rate’s drop last month.
Some curious developments are taking place in the job market. The number of job openings and unfilled jobs has continued to rise during the past few months even as unemployment remains high. This suggests that either many people in the job market are still reluctant to take sizable pay cuts and/or that there is a significant mismatch between the skills of many people looking for work and the technical requirements of many jobs. The jobless rate for individuals with a college degree is currently less than 5.0%, whereas the unemployment rate with those without even a high-school diploma is more than 15.0%.
2011 should see a more sizable pickup in hiring. Companies, particularly large corporations, have posted strong profit gains and are holding record amounts of cash. Productivity gains have been very strong in the past year but may be reaching their limits. As more confidence in the sustainability of sales improvement takes hold in a more stable tax/regulatory climate, firms are likely to step up hiring.
Look for company payrolls to add about 2.2 million workers in 2011, double the gain of 2010. Jobs are what this economy now needs and this year should give us better numbers.