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11/21/2012

October Surprise

Good, and frankly somewhat surprising, news from regional labor markets. The Bureau of Labor Statistics reported on November 20 that the states of the Sixth District added nearly 60,000 jobs in October—the strongest monthly increase since October 2010—and the region's unemployment rate fell to 8.3 percent (the lowest reading since December 2008). Perhaps more importantly, October's positive numbers are a marked improvement over the soft labor market readings of the spring and summer months.

October's gains were broad based in geographic terms as all states of the Sixth District added jobs. The largest increase was in Georgia at 16,100, with Florida next at 14,700 and Louisiana with 12,200. Louisiana's increase was the largest in percentage change terms (0.6 percent), and the Bayou State also had the largest decline in the unemployment rate among Sixth District states, a decline of 0.4 percentage points.

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Regional employment gains were broad based by industry as well, with all sectors adding jobs in October. Trade and transportation employment rose 13,500 for the region, while private education and health care increased another 12,600 (this sector continued to add jobs throughout the recession). Construction, by far the hardest-hit sector during the recession, added 2,300 jobs in the region.

While all this is certainly good and welcome news, we're going to keep the Champagne on ice for a number of reasons. First, one month's data do not make a trend. Along those lines, a look at the three-month moving average of regional job growth shows that we've had similar increases in job growth in the years since the recession officially ended. 2010's jump was boosted by temporary census-related hiring, but in the first few months of 2011 and again in late 2011 into early 2012, we saw encouraging increases in employment only to be followed by periods of disappointing results. Simply said, while increases in employment and declines in the headline unemployment rate are good news, these increases need to be sustainable. We're a ways away from making that call.

Second, as Atlanta Fed President Dennis Lockhart said in his November 1 speech in Chattanooga, Tennessee, he is looking for "substantial improvement" in the labor market that one month's worth of data does not by itself accomplish:

The starting point certainly should be the headline unemployment rate and the payroll jobs number. The interpretation of movements in these two statistics would be enriched and reinforced by a review of additional data elements.

Here are examples of what I would look for:

First, I would look for lower unemployment rates that are driven by increased flows of job seekers into employment. I would not interpret discouraged workers dropping out of the labor force as a sign of improvement, even if the unemployment rate falls as a consequence.

Conversely, I'd like to see growing public confidence in the labor market as measured by increased movement of people from out-of-the labor-force status into the labor force—that is, growing labor force participation. I would interpret a reduction in the number of marginally attached workers as a sign of improvement, even if the unemployment rate goes temporarily higher.

Third, I'd look for employment gains that are associated with reductions in underemployment. I would interpret a pickup in job growth less positively if it is associated with increases in part-time jobs for people who seek full-time work.

Finally, I'd like to see signs that improvements in all these indicators are gaining momentum and are sustainable. A framework for assessing labor market conditions needs to include forward indicators of labor market health, such as falling claims for unemployment insurance.

So, in addition to seeing sustainable trends in job growth and ongoing declines in unemployment rates, there are quite a few other indicators that need parsing.

Finally, through our network of business contacts throughout the Southeast, we have not detected a shift in sentiment that would lead us to expect a budding recovery in labor markets. Firms remain cautious regarding hiring—even more so in light of the short-term fiscal challenges facing the country. (For more on this, read President Lockhart's November 16 speech in Charlottesville, Virginia.)

October's employment reports were a pleasant surprise, to be sure, and we remain hopeful that a sustainable, upward trend is building in the labor market. Several more months of positive reports are needed, with more progress on a number of labor market indicators—not just the headline grabbers like the unemployment rate—before we would consider saying that "substantial improvement" in labor markets was under way.

Photo of Michael ChrisztBy Michael Chriszt, a vice president in the Atlanta Fed's research department


November 21, 2012 in Employment | Permalink

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