The December employment report showed a continuation of the past few months trend as payroll employment rose 103,000 and the household survey showed a gain of 297,000. The
unemployment rate fell to 9.4%, but almost half of the drop was due to a 260,000 drop in the labor force.
The gains in payroll employment reflected a 113,000 gain in private jobs and a 10,000 fall in government employment. Now that the census employment distortions have moved out of the data it is now showing the fundamental trends as both of the changes were near the averages of 2010.
Although the employment gains were weak by historic standards, they are about the same as in the 1990s jobless recovery and moderately stronger than in the 2000s jobless recovery.
Average weekly hours for nonsupervisory rebounded to 33.6 hours, the same as two months ago. As with the employment data, the hours worked data is strong compared to the last two jobless recoveries but weak by historic norms.
The payroll/ employment ratio remains about the same as it has been for a year. The employment data shows that the massive excess capacity created in the great recession has not improved. This is in sharp contrast to the manufacturing capacity utilization data where capacity utilization has rebounded about half way back to the last peak. This difference suggest that significant capacity problems could emerged well before the economy returns to full employment. For example, in the ISM survey the deliveries index has rebounded from 45 two years ago to 55 now. The previous cyclical peak for deliveries was 61 in 2005. The deliveries index is a very good leading-concurrent indicator of bond yields and inflation.
The employment release reported that the employment diffusion index rebounded to 60.0 in December and this may be a leading indicator of improved employment. But I prefer to watch the three month diffusion index and it is not improving.