Fitch: November U.S. Jobs Data Highlight Structural Headwinds

CHICAGO--(BUSINESS WIRE)--Fitch Ratings sees little room for real optimism in today's November payroll data release, despite additional evidence that U.S. private sector hiring continues to increase at a modest rate.

The Bureau of Labor Statistics (BLS) reported today that private sector employers added 140,000 jobs last month, offset by 20,000 job losses in the public sector. An improvement in the unemployment rate to 8.6% masks the underlying structural weakness in the U.S. labor market and the bias of November payrolls growth toward low-paying service industry jobs.

Private sector employment growth in the month was driven primarily by growth in retail hiring (up 50,000), as well as professional services (up 33,000), leisure industries (up 22,000), and healthcare (up 17,000). Importantly, manufacturing and construction employment gains were essentially non-existent.

Unlike previous recoveries, the pick up in GDP growth since second-quarter 2009, when the recession officially ended, has not translated into substantial payroll gains or a steady and material drop in U.S. unemployment. Broader measures of unemployment, such as the BLS's U-6 rate of 15.6% in November (down from 17.0% a year ago), remain at distressed levels.

The sluggish recovery in the labor market continues to point toward structural unemployment, which persists even as the economic expansion continues. In particular, we see the absence of a vibrant housing recovery as placing a heavy and continuing drag on payroll growth.

In contrast to the 2002-2004 post-recession period, when construction jobs provided a critical boost to the labor market and consumer spending, no such upswell in construction hiring is evident now. Total construction jobs have fallen from 7.8 million in the last quarter of 2007, when the recession began, to just 5.8 million jobs today, and there is no indication that employment has begun to increase significantly.

Interestingly, the decline is almost evenly split between residential and nonresidential construction. Excess industrial capacity, the lack of funds at the state and municipal level, and the overhang of foreclosed houses are all weighing on the construction market.

The feeble U.S. jobs market is not without its bright spots. Since the end of 2010, steady improvement in the ratio of job openings and voluntary separations to layoffs points to more movement in the labor market and a thawing of the hiring environment across various industries (particularly in the service sector). Investors may want to review BLS's Dec. 13 Job Openings and Labor Turnover Survey (JOLTS) to confirm the pattern of improvement in labor market mobility.

Nevertheless, a robust and sustainable recovery in the labor market depends greatly on expansion of payrolls in manufacturing and construction, which is not evident in this morning's report.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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