Unemployment Drops, Markets Yawn

Today’s November employment report from the Labor Department revealed that “only” 11,000 jobs disappeared last month.  This was far better than expected.  Economists had projected a loss of 125,000 jobs, according to a Bloomberg survey.

At the same time, the jobless rate dropped from 10.2% to 10.0%.  Put the numbers together and you may notice something strange.  How can the unemployment rate drop while jobs are still being lost – albeit not as many as expected?  It’s all in the definitions.

In order to be considered “unemployed,” a person must answer in a phone survey that he/she is able to work, wants to work, but cannot find work.  Specifically, if you haven’t looked for a job in the last four weeks, you are not considered unemployed.  You are instead “marginally attached.”  In November 2.3 million were in this category, up 376,000 from a year earlier.

Of those who are unemployed, some 38.3% have been so for six months or more.  Moreover, the number of people who want full-time jobs but are currently working only part-time rose by two million in the last year, to about 9.3 million.  These people are “employed” but not exactly thriving.

The drop in the jobless rate is certainly a step in the right direction, but celebration is probably premature until we see actual employment growth.  Financial markets appeared to grasp this concept today; major benchmarks barely moved.  The main reaction was in the dollar, gold, and related equity sectors.  On the surface, this makes sense.  We know the Federal Reserve is watching unemployment; improvement on this front raises the odds of higher interest rates – good for the dollar and bad for gold.

On the other hand, given the magnitude of the gold rally and dollar downtrend recently, a correction is not so unexpected.  The jobs report may simply have been a convenient trigger for events that would have unfolded anyway.