11/4/2011
By Carlos Guillen, Research Analyst

The unemployment story during the October was nothing to rejoice over, but it at least gave some reassurance that the situation was not getting worse, helping to slightly attenuate fears of a double dip recession scenario. Of course, to many out there that are hurting without jobs, a lower likelihood of a "double dip" is meaningless; however, the direction of employment at least gives some hope.

Earlier on Friday, the department of labor reported an unemployment rate of 9.0 percent corresponding to October, which decreased from the 9.1 percent level reached in September and landed better that the Street's 9.1 percent estimate. More encouraging, however, was that the nonfarm figure came in better than expected despite significant revisions.

The October employment Household Survey Data was encouraging once again. It was good in the sense that the employment level increased by 277,000, and it was also good because the number of people unemployed decreased by 95,000. Moreover, the fact that the unemployment rate decreased slightly was better than what the number reflects as the market was able to absorb a worker population growth (Civilian Non-institutional Population) of 199,000 during the month. Nonetheless, the unemployment rate is still at an unacceptable level, and I estimate that the economy needs to add approximately 125,000 jobs per month (using data for the past ten years) in order to just satisfy worker population growth; and more than that to bring the unemployment rate to normal (5%-6%) historic levels.

Unfortunately, the change in nonfarm payroll jobs was a bit below the Street's expectations, as it showed an increase of 80,000 jobs while the Street's consensus called for a gain of 85,000. This result also came in below ADP's nonfarm jobs number posted on Wednesday that showed an increase of 110,000 jobs, which was better than the Street's estimate calling for a gain of 100,000 jobs. However, it should be noted that nonfarm data was revised higher for August and September by 47,000 and 102,000, respectively. So, excluding the revision, nonfarm employment would have increased by 187,000, which would have been much higher than the Street's forecast and ADP's number.

From a different perspective, it was encouraging to see that the Employment-population ratio continued to trend higher. This measure gives a better view of what has been occurring most recently, as it is not affected by people moving in and out of the labor force like the unemployment rate is affected, since it is the percentage of the civilian non-institutional population that is employed. As it can be observed below, this ratio had been consistently getting worse, but now it appears to be ramping higher for the third consecutive month.

In sum, the jobs numbers were good, not great but good. The Household Survey Data showed that the jobs market was able to handle worker population growth while being able to improve the unemployment rate slightly; excluding revisions, the Establishment Survey Data showed that nonfarm employment increased much better than expected; and the Employment-population ratio continued its uptrend. While there was a slightly improvement to the Jobs backdrop, the fact of the matter is that there are still many people without jobs, and the long-term unemployed need help. The economic backdrop appears continuing to teeter around a "double dip" scenario, and the situation in Europe is not helping. Moreover, consumers continue to worry about the situation in Washington as all ideas to generate jobs are either failing or being rejected. The sense at the moment is that consumer's view on how Washington is dealing with the macro economy is at an all time low--"Houston ...­ we have a problem."

Carlos Guillen
Wall Street Strategies