The employment report for December came in weaker than expected with 85,000 jobs lost, versus consensus expectations of a loss of 35,000 jobs. It is worth noting, however, that the consensus expectations had been moving down over the course of the week, especially in reaction to the ADP numbers, which proved to be very accurate this month.

The unemployment rate remained at 10.0%, but that was a function of a declining participation rate. The underemployment rate (U-6) ticked up to 17.3% from 17.2% in November, but is still below the 17.4% peak in October.

There were a few silver linings to the report, but one does have to dig fairly deep to find them. Chief among these was that the number of temporary jobs increased by 47,000 in the month, continuing the recent rebound. Since July ’09, 166,000 temporary jobs have been added.

Why is this important? It is not because temp jobs are better than other sorts of jobs, but because they are a leading indicator of overall employment. When business first starts to pick up, rather than going out and hiring someone full time and permanently, many businesses will first call Manpower (MAN) or Kelly Services (KELYA). Only when businesses get more confident that the upturn is sustainable will they then bring on permanent new employees.

The leading nature of temporary employment is shown in the first graph below (from http://www.calculatedriskblog.com/). However, the other leading indicator of employment, the average work-week, was flat at 33.2 hours (after an increase from 33.0 hours in November). Even before firms bring on temps, they will tend to work their existing workforce harder and longer. This is particularly true if they have cut back the hours of the existing employees during the downturn. No deterioration there, but it would have been nice to see that continue to rise.
 

 
The other silver lining was an upward revision to the November figures. It turns out we actually gained 4,000 jobs in November (the first increase since December 2007) rather than the 11,000 jobs we thought we lost. Those revisions were offset by an almost identical downward revision to the October jobs numbers.

Another silver lining is that the rate of job losses has been trending down rather significantly, even if it did have a bit of a hitch in December. The average rate of job losses in the fourth quarter was 69.000 per month — less than one-tenth of the rate of job losses in the first quarter (-691,000).

When employment growth is measured on a year over year basis, we are now 3% below a year ago, but in July we were 4.2% below a year ago. That number should continue to improve significantly in the months to come as the truly horrifying job losses of a year ago roll off. This is shown in the second graph (also from http://www.calculatedriskblog.com/).
 

 
Losing fewer jobs is not the same as actually gaining net jobs in the economy, and a lot of damage has been done since the recession started. Since the peak in December 2007, the economy has lost a total of 7.7 million jobs, and the unemployment rate has doubled. Keep in mind that the population is still growing.

Getting back to the peak level of employment — 138.152 million in December 2007 — is going to take a long time. Even if we were able to magically get back to the average job creation rate of the Clinton years — 237,000 per month — and do so starting next month, it would not be until the Summer of 2012 that we got back to the December 2007 job totals. If we were to get back to the average of the four best years of job creation under G.W. Bush (2004 through 2007, 162,000 per month), it would be the winter of 2013 before we saw a new peak. Then again, it took us fully four years to hit a new peak in employment (from 2/01 to 2/05) after the last relatively shallow recession.

As the third graph (also from http://www.calculatedriskblog.com/), this is the deepest recession since WWII in terms of job losses, and it is also one of the longest recessions on record. The 2001 downturn was the only one that lasted longer in terms of the length of decline, but at that time cumulative job losses only totaled 2.0%; this time, the cumulative losses are 5.2%.

In all but three (notably the last three) previous post-war recessions, not only had the job losses stopped by this point, but total jobs had fully recovered and we had set a new total employment record. The 2001 recession was off-the-charts in terms of length of time to recovery, but the odds are that we will smash that record this time around.

Population growth means that we need to be adding about 100,000 jobs a month just to stay in place. We are looking at a situation where there is going to be lots of slack in the economy for years to come.

Overall, this was a very disappointing report. I will have a follow-up post in which I go into greater detail about the demographic groups and economic sectors and how they fared last month on the employment front, as well as a discussion of the duration of unemployment.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

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