The headlines from the November employment report were a decline in the unemployment rate to 7.7% along with an increase of 146,000 jobs. You know what's next; there's more to it as one delves into the details. Why did the unemployment rate decline? We're back to the story that has played out in recent years - there were fewer people participating in the job market. For people to be considered unemployed, they need to be actively seeking a job. In November, 350,000 people dropped out of the labor force. If the labor force had remain unchanged, the unemployment rate would have ticked up to 8% (technically, 7.95%, but rounded up to 8%). The decline in the participation rate reversed the gain in October and put us close to a 30-year low (it was 63.6% in November, slightly above the recent low of 63.5% in August 2012, which was the lowest since 1981).
On the job front, the surprise was that Sandy had little impact (the report explains that the impact nationally was minimal, but there may have been some impact in the region; it should be noted that the data for employment was collected about 2 weeks after Sandy hit the northeast).
What stood out in terms of job creation? Retail trade added 52,600 jobs (and over 100,000 in the last 2 months), led by an increase of 33,300 in clothing stores. Most of the other gains were spread out across the service sector.
What's the takeaway? The economy continues to add jobs at a modest pace (averaging about 150,000 per month). Though this seems OK, it mainly reflects our lowered expectations. The decline in the unemployment rate is welcome, but still mainly reflects fewer people participating in the job market. The unemployment rate peaked at 10% in October 2009. Since then the participation rate has declined from 65% to 63.6%. If it had remained unchanged, the unemployment rate would currently be 9.7%. Some of the decline is due to demographic factors (i.e., baby boomers retiring, etc.), but some of it is due to people giving up looking for work due to the weak economy.