Can You Really Trust the Job Market Picture?

Americans filing new claims for unemployment benefits declined last week. However, the results are most likely skewed by the effects of superstorm Sandy. In the longer-term, other job-related reports may be influenced by new healthcare regulation.

The Labor Department reported that initial jobless claims for state unemployment benefits fell 8,000 to a seasonally adjusted 355,000 for the week ended November 3, well below the consensus forecast of 365,000 claims. Projections ranged from 335,000 to 450,000 in a Bloomberg survey of 51 economists. However, it may take three to four weeks to see the full impact from Sandy, which crippled the Eastern part of the United States in late October.

An analyst from the Labor Department said that Sandy increased claims in some states by leaving people out of work, but reduced claims in other states as people were either unable to reach the Department or occupied with more urgent matters. Scott Brown, chief economist at Raymond James & Associates, also believes the superstorm had an impact on the results. He explains, “When you see bad weather, there’s usually a drop in claims, and then you typically see a rebound in the next few weeks. Underneath the surface, job destruction has been trending very low. Layoffs aren’t the problem, it’s the relatively weak pace of job creation.”

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The four-week moving average of claims, which is seen as a less volatile weekly measure, increased by 3,250 to 370,500. Meanwhile, people who have exhausted their traditional benefits and are now receiving emergency and extended payments increased by about 20,000 to 2.15 million for the week ended October 20.

While seasonality effects and weather issues can influence job-related reports, there is a trend beginning that could affect the labor market for years to come. In an effort to dampen the impact of Obamacare, some low-wage employers are moving towards hiring more part-time employees and scheduling them for fewer hours. Under the new healthcare act, companies will be required to provide a minimum level of insurance for employees working at least 30 hours a week by 2014, or pay a penalty starting at $2,000 for each.

To side step the extra healthcare costs, businesses such as Darden Restaurants (NYSE:DRI), the owner of the Olive Garden and Red Lobster, are currently testing limiting some employees to a less than 30-hour workweek. “This is just a test,” said Rich Jeffers, the casual-dining company’s director of media relations and communications. “This is something we’re trying at some locations…we’re trying to figure out the optimal mix of employees for our restaurants. We’re looking at it now instead of waiting until the eleventh hour.”

Earlier this year, McDonald’s (NYSE:MCD) CFO Peter Bensen noted that the company was looking at healthcare factors, such as the number of full-time employees. Papa John’s (NASDAQ:PZZA) CEO John Schnatter also voiced concerns over Obamacare, saying franchise owners would likely reduce employee hours to avoid having to cover their healthcare. On the other hand, some companies such as Costco Wholesale (NASDAQ:COST) and Panera (NASDAQ:PNRA) have insisted that the new healthcare law will not affect how they schedule employee hours.

Mike Shedlock, one of the first people to shine a light on this trend, believes that the reduction of full-time employees and the increased hiring of part-time employees will lead to a distortion in job market indicators such as the headline unemployment rate. The rate may decrease, but at the cost of becoming a part-time nation. He explains, “Do the math. Reducing hours from 30 to 25 for 2,000 workers is a net reduction of 10,000 hours. To make that up, the company will have to hire 400 workers, an increase of 20 percent. This is happening across the board in many industries. Ten to 20 percent staff increases in fast food chains, restaurants, grocery stores, etc., is one hell of a lot of jobs.”

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