The Sound of Teeth Gnashing

Disappointing week. There was reason to hope that the employment report would be brighter than it turned out to be. Weekly data on new claims for unemployment insurance had been improving, after all, suggesting that job seekers were finding more work than in the recent past. But the December report on the overall jobs picture was a two-punch attack on our optimism.

First, the unemployment rate fell from 9.8% to 9.4%. Superficially, that sounds rather good, and there’s a slim reed of a chance that it’s a little better than our first analyses say it is. We can fairly assume that the unemployment rate fell largely because the number of people actively seeking jobs declined. As you know, the unemployment rate is an attempted measurement of the workers seeking employment but not finding it. It excludes those who are technically not part of the work force because they have, for the moment at least, simply thrown in the towel and stopped looking for a job.
The unemployment rate is computed from an extensive telephone survey of private homes, in which someone asks whether there are people in the household looking for work who haven’t found work and whether there are people in the household who have work. The survey that discovers how many people were actually hired in the prior month, on the other hand, involves calls to businesses. This survey found that 103,000 people had been given a job (that is, there were 103,000 nonfarm payrolls created) in December.

These are, you can see, very different methods of measurement, one polling the public, the other polling businesses, and though they are remarkably accurate, all things considered, they would surely be subject to revision if we bothered to check on them carefully. So they give us thumbnails sketches of the employment situation.

As with any statistical analyses, everything depends on the interpreter of the numbers. We can get very excited about the fact that 1.1 million jobs were added in 2010, for example. But then we noticed that a total of 8.4 million jobs were lost over the course of the recession, and it becomes obvious that we’re not even running in place.

Regarding the December data, Sara Murphy of The Wall Street Journal says, “Much faster employment and enduring job gains—on the order of 200,000 a month—are needed for lasting improvement.” We didn’t come near that figure in the past year.

Still, the “green shoots”—bits of data that have been suggesting a strengthening of our economy—have led many of us to expect better jobs figures and, indeed, better figures for real estate sales.

Consider: The National Association of Realtors? keeps track of how many new real estate purchase contracts are signed in a given money. In October, the number of new contracts climbed by over 10%—the largest monthly increase since these numbers have been collected. In November, the number of new contracts, as against those initiated in October, rose by an additional 3.5%, which I have been inclined to see as a confirmation of the October jump.

This created the hope that mortgage applications would rise at the end of December. More financing, after all, is generally needed to complete the larger number of transactions contracted for in October and November. Applications were up 3.5% in the second-to-last week of December, but the purchase money index was actually down in the week ending December 31 by 0.8%.

These figures are nearly impossible to interpret meaningfully. We’ll just have to hang in there and wait for something like a trend to emerge. Meantime, note that mortgage rates have flattened a bit, with the HSH composite rate (including 30-year jumbos) up 7 basis points, and at 4.77%. (It’s worth remembering that rates were a good deal higher at the beginning of 2010, by the way. We still have very attractive financing to work with.)
by: Bill Fisher