The employment report for December was disappointing (see here). The job losses were concentrated in the goods producing side of the economy, which lost 81,000 more jobs.

Construction was particularly hard hit again, with a loss of 53,000 jobs. Construction employment peaked earlier than did total employment, in January 2007, at 7.737 million jobs; now construction employment is down to 5.907, a decline of 1.83 million, or 23.7% from the peak. The last time that construction employment was this low was in November of 1997.

Manufacturing, the other big part of the goods producing sector, lost 27,000 more jobs in December. Manufacturing employment never really increased during the last economic expansion, so it is hard to get a good starting point for its decline. Since the overall peak in employment in December 2007, though, we have lost a total of 2.147 million factory jobs, or 15.6% off the 12/07 level. The last time we had anything that looked like a peak in manufacturing employment was back in August of 1998, when there were 17.563 million factory jobs, but even that was a pretty feeble peak. The true historic peak in factory employment came all the way back in June of 1979, more than 30 years ago, at 19.509 million jobs.

The first graph (blue) shows the history of construction and manufacturing employment since 1950, along with total private sector employment (right scale, green line). Clearly manufacturing has been hurting, at least in terms of employment, for a long time now. Total manufacturing output, though, has continued to increase over the years as it has been generally easier to automate factories than other parts of the economy.

Ford (F) and General Motors may have lost market share to Toyota (TM). They are, however, making almost the same number of cars and trucks as they were back in 1982. The UAW, on the other hand, is only a small fraction of the size it was back then. Automation has probably resulted in more jobs lost in manufacturing than has outsourcing to China and the rest of the developing world, although clearly both forces have been at work behind the long-term secular decline in U.S. factory jobs.

The service side of the economy has fared much better over the years, and that was true this month as well, with only 4,000 jobs lost. Private service sector employment actually increased as the number of government jobs declined by 21,000. Most of those job losses came at the state and local level, which cannot run deficits and are experiencing severe budget constraints, even after the ARRA (Stimulus Act) has provided massive amounts of aid to the states (about one-third of the whole stimulus program).

The one area that has shown growth throughout this recession is education and health services. While the data lumps them together, most of that growth has come from the health care side. As the second (peach) graph shows, total service sector employment (right scale, blue line) has been growing steadily since 1950. Declining government employment is highly unusual.

Despite the loss of 85,000 more jobs overall, the unemployment rate remained at 10.0%. The reason for that steadiness is not good news, though, as the third (pink graph) shows. The green line (right hand scale) shows the unemployment rate since 1950. This is the employment measure that people are most familiar with, but it really does not tell the whole story:

Back in the 1950’s and 1960’s it was much easier to have a low unemployment rate, since a far larger part of the population was not in the workforce. Part of that was due to the timing of the Baby Boom. In this country, we no longer expect 8-year-olds to go to work each day. Back then, if you read an article and it mentioned women and labor in the same paragraph, the odds were that it was about childbirth, not employment.

That changed in the 1970’s and 1980’s, just as the Baby Boomers were entering the workforce. The percentage of people in the workforce, both employed and unemployed, was on a secular increase from the early 1960’s through just before the end of the century, peaking out at 67.3% in April of 2000.

As the blue line on the graph shows, the participation rate did tend to flatten out or fall a little bit during recessions, but would resume its rise thereafter. This is the “discouraged worker” effect. The participation rate never really recovered after the 2001 recession.  This allowed the unemployment rate to fall despite a very anemic performance in terms of job creation in the last expansion (see previous post). In December, the participation rate fell to 64.6%, down from 64.9% in November and 65.8% a year ago.

The unemployment rate is best understood as the ratio of people in the workforce to the percentage of them who are employed. But it is the employment rate, or the employed-to-population ratio, that has really taken a big hit.

Like the participation rate, the employment rate was in a secular uptrend from the mid-1960’s through the end of the century. It was, of course, much more choppy than the participation rate, falling during recessions but then rebounding to new highs with each economic expansion.

The big exception was in the last expansion. The all-time peak of the employment rate was in April of 2000 when it hit 64.7%. However, its peak in the last expansion was just 63.4% in March of 2007. Since then, it has fallen off a cliff, and now stands at 58.2%, down from 58.5% in November and 60.9% a year ago.

I think that the employment rate is a better overall gauge than is the unemployment rate, and this number is just plain downright depressing. The last time the percentage of the population that was working was this low was back in August of 1982. We also hit these levels in March of 1974 and are just a tick above where we were back in August 1969. We are still below the post-war unemployment rate record, which was set in December of 1982 at 10.8%. The participation rate is still higher than back then, but not by much — 64.6% versus 64.1% — while the employment rate is a full point higher at 58.2% rather than 57.2%.

Recessions are generally the cruelest to those at the bottom of the economic ladder. This can be seen in the breakdown of unemployment by level of education. The unemployment rate for high school dropouts was 15.3% in December, up from 15.0% in November and from 11.2% a year ago. The rate drops to 10.5% for those who graduated from high school but did not go on to college. That is up from 10.4% in November and from 7.8% a year ago.

People who got an associates degree, or didn’t complete four years of college had an unemployment rate of 9.0% in December, unchanged from last month but up from 5.9% a year ago. The unemployment rate for college graduates ticked up to 5.0% from 4.9% in November, and is up from 3.7% a year ago, but is still only half the nationwide total.

Men have been hit particularly hard in this recession (which goes counter to the trend of the people at the bottom of the ladder getting hurt the most, but the goods-producing sector has a higher percentage of male employees than does the service sector). The male unemployment rate, though, did tick down to 10.2% in December from 10.4% in November and 10.6% in October, but it is up from 7.4% a year ago. The unemployment rate for women is “only” 8.2%, up from 8.0% in November and 6.0% a year ago.

Those are the numbers for adults. The group that has been hit the hardest is teens, regardless of gender.  The teen unemployment rate rose to 27.1% in December from 26.8% in November and 20.8% a year ago.

Blacks tend to have higher unemployment rates than whites regardless of the overall economic climate, but they get hit the hardest in recessions. The overall black adult unemployment rate was 16.2% in December, up from 15.6% in November — a huge one-month increase. A year ago, the unemployment rate among blacks was 12.1%. Hispanic unemployment rose to 12.9% in December from 12.7% in November and 9.4% a year ago. Whites have fared better, with an unemployment rate of 9.0% in December, down from 9.3% in November but up from 6.7% a year ago.

If we break it down further by race gender and age, adult white women are faring the best as far as employment is concerned, with a rate of 7.4%, unchanged from November but up from 5.7% a year ago. White men saw the most improvement this month, with their unemployment rate falling to 9.3% from 9.8% in November, though up from 6.6% a year ago. White teens had an unemployment rate of 23.6% in December, up from 23.0% November and 18.9% a year ago.

The unemployment rate for black men improved a bit in December, to a still very high 16.6% from 16.8% in November, but up from 13.8% a year ago. Black women suffered a massive increase to 13.1% in December from 11.7% in November and 8.9% a year ago. I am not sure why Black women fared so poorly in the last month in particular.

If you really want to find a group that is hurting for jobs, it is black teens, although there was a little bit of improvement this month. The rate for black teens fell to 48.4% from 49.8% in November and is up from 33.3% a year ago. When you consider that almost one in two unemployment rate, also keep in mind that the participation rate among black teens in the workforce is also extremely low. The participation rate for black teens is just 27.5%, and only 14.2% of all black teens are employed. Those are rates one associates with Africa, not with African Americans.

The participation rate for white teens is 38.4%, and 29.4% of all white teens have jobs. Teen employment is important, not because it is keeping the family going (although it sometimes plays a role there) but because it provides the basic job skills that are going to be needed later in life.

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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