The government's announcement Friday that the seasonally adjusted U.S. unemployment rate fell to 7.7% in November, down from 7.9% in October, is more a reflection of the need to adopt a new national jobs measure than an indication of real job market conditions. The drop in the unemployment rate came as the number of employed Americans fell by 490,000 on an unadjusted basis, but was outpaced by a much larger decline of 826,000 in the number of Americans in the workforce. As a result, November's unemployment rate decline is more a sign of weakness than strength for the economy.
In sharp contrast, today's weak job market reality is shown by Gallup's new P2P (Payroll to Population) job market measurement. After indicating essentially no real improvement in the U.S. job market since early summer, P2P plunged to 43.7% in November. This means fewer Americans are employed full time for an employer as a percentage of the population today than was the case a year ago.
The P2P is a simple, straightforward measure of job market conditions that avoids the many adjustments and estimates involved in calculating the government's unemployment rate. The P2P is also devoid of the distortions created by the shrinking labor force.
Next week, the Federal Open Market Committee meets to discuss Fed policies. As part of those discussions, members should take a look at Gallup's P2P measure and what it implies as the U.S. economy enters 2013. The jobs situation is not improving as the decline in the government's unemployment rate might imply to some, but instead has fallen below the November 2011 level. Further, the Wells Fargo/Gallup Small Business Index survey suggests that one in five owners expect to reduce their number of employees over the next 12 months as their net hiring intentions have fallen to a four-year low.
Of course, the same considerations should be taken into account as the president and the Congress continue their fiscal cliff deliberations. They should not be misled into thinking the unemployment situation, and the economy, are improving as we enter 2013. Instead, they should recognize that the employment situation is not only weak but poised to deteriorate early next year. That is, a fiscal cliff-related recession could end up being longer and more severe than the government's unemployment data may imply.
