2/8/2010
By Carlos Guillen, Semiconductor Analyst

The jobs numbers during January were certainly a good indication that the overall employment backdrop is heading in a favorable direction. According to the department of labor, the unemployment rate clocked in at 9.7%, which decreased from the 10% reached in December and landed nicely lower the Street's estimate of 10.0%. What is encouraging about this result was that the number of people employed increase quite significantly while those unemployed and those not in the labor force decreased. In essence, the unemployment rate in January was not positively affected by people moving out of the job force. Of course, it should be noted that there are large adjustments that take place every January to mitigate the effects of seasonality. Nonetheless the direction of the unemployment rate is encouraging.

Even when looking at the darker side of the story, that is including discouraged worker and those underemployed, the numbers still look to be improving. If we include in the unemployment rate calculation "Part time for economic reasons" of 8.3 million and "Marginally attached to the labor force" of 2.5 million, we calculate an unemployment rate of 16.5%, which also decreased from last month's figure of 17.3%.

Perhaps a bit disappointing was that nonfarm payroll did not meet the Street's expectations. Nonfarm payroll employment decreased by 20,000, going against the Street's estimate of a 15,000 increase. Surprisingly, this result came in line with ADP's nonfarm jobs number that showed a loss of 22,000 jobs. In should also be noted that nonfarm payroll employment has fallen by 8.4 million since the start of this recession in December 2007. Nonetheless, as it can be seen in the chart below, it is encouraging to see that the overall trend in nonfarm employment changes is positive. In other words, nonfarm employment losses are getting smaller and smaller and are likely to become job gains very soon.

Working hours also improved during January with the average workweek for production and nonsupervisory workers on private nonfarm payrolls increasing by 0.1 hours to 33.3 hours. Moreover, the manufacturing workweek increased by 0.2 hours to 40.8 hours and factory overtime rose by 0.1 hour to 3.5 hours. While these changes are small, they most certainly are heading in the right direction.

Although we are not pulling out the Champaign bottles, we are giving a sigh of relief. The job situation is likely to get better, but we don't see any miracles happening this year. The unemployment rate is likely to stay above 9% for most of this year and perhaps move into the 8% range by the end of 2011 into 2012. The employment losses have been so massive that normal unemployment rates (between 5% and 6%) are not likely to be reached until the middle of this decade. Nonetheless, the employment backdrop is improving.