Thursday, 15 of November of 2018

Economics. Explained.  

Category » Employment

Initial Unemployment Claims

November 8, 2018

Initial unemployment claims continue to fall to multi-decade lows.  Specifically, claims fell 1 thousand in the week ending November 3 to 214 thousand after  having declined 1 thousand in the previous week.  The 4-week moving average was unchanged at 214 thousand.  The lowest level for this series in the cycle was set back in mid-September at 206 thousand.  It obviously remains close to that level.  That, in turn, was the lowest level since December 6, 1969 when it was 205 thousand.

As one might expect there is a fairly close inverse relationship between initial unemployment claims and payroll employment.  With initial claims (the red line on the chart below, using the inverted scale on the right) at 214 thousand  we would expect monthly  payroll employment gains to exceed 300 thousand.  However, employers today are having difficulty finding qualified workers.  As a result, job gains are significantly smaller than this long-term relationship suggests and are currently about 190 thousand.

With the economy essentially at full employment, employers will have steadily increasing difficulty getting the number of workers that they need.  As a result, they might choose to offer some of their part time workers full time positions.  But this series is exactly where it was going into the recession so they will have limited success in finding necessary workers from this source.

They will also have to think about hiring  some of our youth (ages 16-24 years) .  But the September level for the youth unemployment rate today was the lowest on record (for a series that goes back to 1970) so there are not many younger workers available for hire.

Finally, employers may also consider some workers who have been unemployed for an extended period of time.  But these workers do not seem to have the skills necessary for today’s work place.  Employers may have to offer some on-the-job training programs for  those whose skills may have gotten a bit rusty.  But even if they do, the reality is that the number of discouraged workers today is quite low — it is essentially where it was going into the recession.

The number of people receiving unemployment benefits declined 8 thousand in the week ending October 27 to 1,623 thousand.  The 4-week moving average declined 8 thousand to 1,633 thousand.  This was the lowest 4-week average since August 11, 1973 when it was 1,627 thousand.  The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.8%; potential growth has probably picked up from 1.8% previously to perhaps 2.3% today given faster growth in productivity.  Thus, going forward  the unemployment rate should continue to decline slowly.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment vs. Job Openings

November 6, 2018

The  Labor Department reported that job openings declined 3.9% in September to 7,009 thousand, but that follows an increase of 3.1% in August and 3.7% in July.   It is worth noting that there are far more job openings today than there were prior to the recession (4,123 thousand in December 2007).   There were 6.0 million people unemployed in September.

As shown in the chart below, there are currently 0.8 unemployed workers for every available job.   Think of that — there are more job openings today than there are unemployed workers.  Prior to the recession this ratio stood at 1.7 so the labor market is clearly in far better shape now than it was prior to the recession.  Further, at the end of the recession there were 6.6 times as many unemployed workers as there were job offers so, clearly, the job market has come a long ways in the past 9-1/2 years.

In  this same report the Labor Department indicated that the quit rate in September was  at 2.4 which is the highest level since January 2001.   This is a measure of the number of people that voluntarily quit their jobs in that  month.  During the height of the recession very few people were voluntarily quitting because jobs were scarce.  So the more this series rises, the more comfortable workers are in leaving their current job to seek another one.  The quit rate today is 2.4.  At the beginning of the recession it was at 2.0 and the record high level for this series was 2.6 back in January 2001.

There is one other point that should be made about this report.  Janet Yellen used to  claim that there were a large number of unemployed workers just waiting for jobs if only the economy were to grow fast enough.  She is assuming that these people have the skills and are qualified for employment.  We tend to disagree.  There are plenty of job openings out there.  What is not happening as quickly is hiring.  Take a look at the chart below.  Job openings (the green line) have been rising rapidly (and are far higher now than they were prior to the recession); hires (the red line) have been rising less rapidly.

Indeed, if one looks at the ratio of openings to hires the reality is that this ratio  has not been higher at any point in time since this series began in 2000.  There are plenty of jobs out there, but employers are having a hard time filling them.  Why is that?

A couple of thoughts come to mind.  First and foremost, many unemployed workers simply do not have the skills required for the jobs available.  If they did, why aren’t they being hired?  Why aren’t some current part time workers stepping into the void for those full time positions? Why haven’t discouraged workers begun to seek employment with so many jobs available?  Why haven’t long-term unemployed workers bothered to go back to school and acquire the skills that are necessary to land a  job?

Or perhaps many of these people flunk the drug tests.  They might not be qualified for employment for a variety of possible reasons.

Perhaps also some people in this group find the combination of unemployment benefits and/or welfare benefits sufficiently attractive that there is little incentive to take a full time job when you can sit at home do nothing and make almost as much.

Whatever the case, it appears that the decline in the unemployment rate in the past couple of years is not simply a reflection of workers dropping out of the labor force.  Jobs are plentiful and the only reason the unemployment rate is not falling faster is because the remaining unemployed/discouraged/part time workers do not have the skills required by employers today, flunk the drug tests, or are unwilling to take the jobs that are available.

Stephen Slifer

NumberNomics

Charleston, SC


Private Employment

November 2, 2018

Private sector employment for October surged by 246 thousand after having climbed by 121 thousand in September.   The October increase was somewhat larger than anticipated which counters the smaller-than-normal increase in September.   In our opinion, the outlook for employment has not changed much in the wake of this report.  The Bureau of Labor Statistics indicated that Hurricane Michael that made landfall in the Florida Panhandle on October 10 had no discernible effect on either the employment or unemployment estimates for October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 211 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 180 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 30 thousand in October after expanding by 20 thousand in September.    The trend increase in construction employment appears to be about 30 thousand per month.  But what seems to be important is that the monthly gains in this category seem to be gradually getting larger.

Manufacturing employment jumped 32 thousand in October after having risen 18 thousand in September.    Factory employment is now rising by about 25 thousand per month and, like construction employment, the monthly increases seem to be gradually getting larger.  Employers seem to be finding additional workers.

Mining rose 5 thousand in both September and October.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care and social assistance climbed by 47 thousand.  Professional and business services increased 35 thousand in October.  Transportation and warehousing climbed by 25 thousand.  Employment in leisure and hospitality establishments jumped 42 thousand in October.  Retail jobs rose 2 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek rose 0.1 hour to 34.5 hours in October after a similar-sized decline in September  That is  about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.5% in October after declining 0.3% in September.  Thus, it rose 1.1% in Q3.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market had a tough month of October but seems to be rebounding and should reach new highs before too much longer.  Consumer confidence is holding up well and has shrugged off the October decline in the stock market.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that has now turned upwards.  As noted earlier, factory employment is gathering momentum.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from 2.5% in 2017 to 3.0% this year and 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

November 2, 2018

Payroll employment for October surged by 250 thousand after having climbed by 118 thousand in September.   The October increase was somewhat larger than anticipated which counters the smaller-than-normal increase in September.   In our opinion, the outlook for employment has not changed much in the wake of this report.  The Bureau of Labor Statistics indicated that Hurricane Michael that made landfall in the Florida Panhandle on October 10 had no discernible effect on either the employment or unemployment estimates for October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 218 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 180 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 30 thousand in October after expanding by 20 thousand in September.    The trend increase in construction employment appears to be about 30 thousand per month.  But what seems to be important is that the monthly gains in this category seem to be gradually getting larger.

Manufacturing employment jumped 32 thousand in October after having risen 18 thousand in September.    Factory employment is now rising by about 25 thousand per month and, like construction employment, the monthly increases seem to be gradually getting larger.  Employers seem to be finding additional workers.

Mining rose 5 thousand in both September and October.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care and social assistance climbed by 47 thousand.  Professional and business services increased 35 thousand in October.  Transportation and warehousing climbed by 25 thousand.  Employment in leisure and hospitality establishments jumped 42 thousand in October.  Retail jobs rose 2 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek rose 0.1 hour to 34.5 hours in October after a similar-sized decline in September  That is  about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.5% in October after declining 0.3% in September.  Thus, it rose 1.1% in Q3.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market had a tough month of October but seems to be rebounding and should reach new highs before too much longer.  Consumer confidence is holding up well and has shrugged off the October decline in the stock market.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that has now turned upwards.  As noted earlier, factory employment is gathering momentum.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from 2.5% in 2017 to 3.0% this year and 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment Rate

November 2, 2018

The unemployment rate was unchanged in October at 3.7% after having declined 0.2% in September.    The October level of 3.7% is the lowest level for the unemployment rate in 48 years.  The labor force jumped 711 thousand in October.  Employment surged by 600 thousand.  As a result, the number of unemployed workers rose by  111 thousand but the unemployment rate remained steady at 3.7%.  While employment used in calculating the unemployment rate rose 600 thousand, payroll employment increased by just 250 thousand.  How can this be?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey. It could be that self-employed workers rose sharply in October.  The other reality is that there is just statistical noise between the two surveys.  The trend rate of growth is similar, but with wide variation from month to month — the household survey being the more volatile of the two.

Labor force growth in the past year was 1.4% which is slightly more than growth in the population which was 1.1%.  Thus, the labor force partition rate rose slightly during that period of time.  It is now 62.9%.  A year ago it was 62.7%.

At 3.7% the unemployment rate is far below the 4.5% level that the Fed considers to be full employment.  However,  the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of marginally attached workers has been falling quite steadily and is now roughly in line with where it was going into the recession.

We should probably be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad fell 0.1% in October to 7.4% after having risen 0.1% in September.  At 7.4% it is lower than where it was going into the recession.  It is hard to argue that there is slack remaining in the labor market.  The broad rate of  7.4% compares to 3.7% for the official rate.

As the economy continues to expand the pace of hiring will remain steady and  both rates are going to fall.  As firms look a bit harder to find the workers they need they may have to turn to other sectors of the labor market rather than just currently unemployed workers.  They may seek younger workers, but they may have a difficult time because our youth unemployment rate is the lowest it has been in more than 48 years.

They may also look at some of their part-time workers who are reliable and have a good work ethic and offer them full-time positions.  Employers may have a bit more success here.  The number of part time workers who say they want full time employment is still slightly higher than it was going into the recession, although it is steadily declining and getting very close.

In short, both rates should continue to fall in the months ahead and are already below their full-employment threshold.  In that world labor shortages are likely to become even more evident in the months ahead.  That will put upward pressure on wage rates which should, in turn, gradually lift the inflation rate.  As a result, the Fed will continue to gradually raise the funds rate in the months ahead.

Stephen Slifer

NumberNomics

Charleston, SC


Nonfarm Workweek

November 2, 2018

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  Payroll employment for October rose 250 thousand after having climbed by 118 thousand in September.  The larger-then-expected increase in October counters the smaller-than-normal increase in October.  The outlook for employment has not changed much in the wake of this report.

The nonfarm workweek rose 0.1 hour in October to 34.5 hours after a similar-sized decline in September.  That is about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.6% in October after a 0.3% decline in September.  For the third quarter it climbed 1.1%.

The factory workweek declined 0.1 hour in October to 40.8 hours after having been unchanged in September.  This series is also about as high as it gets and will lead to additional factory hiring in the months ahead.  With individual and corporate tax cuts taking effect this year and U.S. firms able to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector is gathering  momentum.

Overtime hours were unchanged in October at 3.5 hours .  Like the factory workweek this series, too, is quite long.  The manufacturing sector is trying hard to find the workers it needs — hiring as best it can given the shortage of qualified workers, working existing employees longer hours, and asking people on the line to work more overtime hours.

The economy continues to expand at a respectable pace.  We currently expect GDP to quicken from a 2.5% pace in 2017 to 3.0% in 2018 and 2.9% next year given the prospect of both individual and corporate income tax cuts and repatriation of corporate earnings currently locked overseas.  The economy is currently being supported by robust growth in consumer spending and housing and now manufacturing is coming on strong.

Stephen Slifer

NumberNomics

Charleston, SC


Average Hourly Earnings

November 2, 2018

Average  hourly earnings rose 0.2% in October to $27.30 after having risen 0.3% in September.  Hourly earnings are gradually rising.  During the past year hourly earnings have risen 3.1%.  This is the fastest 12-month increase in a decade and it would be growing more quickly except for the impact from retiring baby boomers.  When you lose a number of people who have been working for 40 years who are making high wages, and replace them by younger workers who are making much less, this series will have a downward bias.  The Atlanta Fed has a series called “wage tracker” in which it tries to adjust for this bias and it believes that wages are currently rising at a 3.5% pace.  This series has been growing somewhat more quickly than the official hourly earnings data and, therefore, seems more consistent with the apparent tightness in the labor market.

In addition to their hourly wages workers can also work overtime hours.  Increases in their total income are captured by the increase in weekly earnings.  Weekly earnings rose 0.5% in October after having been unchanged in September.  Weekly wages have risen 3.4% during the course of the past year.

Wages  appear to be rising a bit more quickly and are able to support a moderate sustained 2.5% pace of consumer spending.

The potential impact on inflation from the tight labor market is best demonstrated by looking at unit labor costs which are labor costs adjusted for the changes in productivity.  In the past year these unit labor costs have risen 1.5% with a 2.8% increase in compensation partially offset by a 1.3% increase in productivity.  Keep in mind that the Fed has a 2.0% inflation target.  If labor costs adjusted for productivity — which account for about two-thirds of a firms overall costs —  are rising by just 1.5%, the tight labor market is not putting upward pressure on the inflation rate.  Much of the increase in wages is being offset by an increase in productivity.

Stephen Slifer

NumberNomics

Charleston, SC

 

 


Average Duration of Unemployment

November 2, 2018

The average duration of unemployment declined 1.5 weeks in October to 22.5 weeks after having risen 1.4 weeks in September.  This series bounces around from month to month.  The June level of 21.2 was the shortest average length of time workers remain unemployed since March 2009.

While the unemployment rate has fallen by 6.3% since reaching a peak of 10.0% in October 2009, the average duration of unemployment has declined far more slowly.  It is clear that  few of the new hires have been from the ranks of the long-term unemployed.  There is a mismatch between the skills that employers need, and the skill set that these long-term unemployed workers seem to have.  Employers in today’s world demand their new hires to be tech savvy, and these long-term unemployed workers tend not to have that ability.

The Bureau of Labor Statistics indicates that 1.37 million workers have been jobless for 27 weeks or longer, and that represents 22.5% of all unemployed workers.

The average duration of unemployment should continue to decline slowly in the months ahead as the labor market gets progressively tighter.  Firms will have to look just a bit harder to find the workers that they need, and that includes looking at long term unemployed workers and perhaps offering them some sort of training program to improve their skills.

Stephen Slifer

NumberNomics

Charleston, SC


ADP Employment

October 31, 2018

As shown above the ADP survey shows an impressive correlation with the private sector portion of the payroll employment data to be released a couple of days later.  And well it should.  ADP, or Automatic Data Processing, Inc. is a provider of payroll-related services. Currently, ADP processes over 500,000 payrolls, for approximately 430,000 separate business entities, covering over 23 million employees.  The survey has been in existence since January 2001, and its average error has been 60 thousand.  So while it is not perfect, it does have a respectable track record.

In October the ADP survey showed an increase of 227 thousand after having risen by 218 thousand in September.  Over the past three months  the trend rate of ADP employment is 202 thousand.    On Friday BLS will release the payroll employment statistics for October.  We look for an increase of about 190 thousand.

Jobs in goods-producing industries  rose 38 thousand in October after having risen 48 thousand in September   —  construction employment rose 17 thousand, mining climbed by 4 thousand,  and manufacturing rose by 17 thousand.   Service providers boosted payrolls by 189 thousand in October after having risen 170 thousand in September.  The October increase was led by an increase of 36 thousand in professional and business jobs,  15 thousand in admin and support, 31 thousand in health care,  40 thousand jobs in leisure and hospitality, an increase of 61 thousand jobs in trade, transportation, and utility workers, and 4  thousand in financial services.

With the labor force rising very slowly, employment gains of 190 thousand or so will continue to slowly push the unemployment rate lower.  The unemployment rate currently is 3.7% which is well below the full employment threshold.  As a result we are beginning to see more and more shortages of available workers, and we are also beginning to see upward pressure on both wage rates and inflation.

The stock market has had a tough month but, finally, seem to be recovering and should continue to climb in the months ahead.   Interest rates are rising slowly but remain low.  Consumers remain confident.  Corporate earnings are solid.  The economy is receiving stimulus in the form of both individual and corporate income taxes.  Thus, our conclusion is that the economy will expand by 3.0% in 2018 versus 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Weekly Earnings — Private versus Public

February 22, 2012

Weekly earnings for private sector employees in 2011 were $729 which is 23% below their public sector counterparts which came in at $895. 

Federal government employees topped the list at $1,063 dollars per week which 46% higher than the comparable worker in the private sector.  State and local government workers came in at $852 and $861 dollars, respectively.

The superior earnings amongst public sector workers is largely accounted for by two factors – health care and pension benefits.  The typical government employee does not make any contribution whatsoever to his or her health care.  A recent Kaiser Foundation study found that the average family’s health care cost is $13,375.  If that burden were split equally between the worker and the government, public sector wages would decline by $130 a week if they had to pay for health care.  Then there is the pension plan.  Government workers can typically retire at 80% of their peak earnings – often at an early age.  A private sector employee can only dream of such a generous retirement package.  These generous benefits have been attained largely through union efforts.

But now those generous health care and pension benefits are under attack.  During the recession tax revenue plunged and state and local government entities faced difficult choices to balance their budgets.   Some laid off thousands of teachers, police, and firefighters.   Others asked workers to take time off without pay.  And still others decided to take on the unions and reduce employee benefits by forcing workers to contribute to their health care and retirement packages.  It is hard to do otherwise when the evidence shows such a wide discrepancy between public and private sector earnings.  Many taxpayers suffered layoffs or saw their wages cut and benefits reduced during the recession.  They expected their politicians to vigorously attack the generous health care and pension packages of government workers which remained untouched.

Stephen Slifer

NumberNomics

Charleston, SC