Tuesday, 16 of July of 2019

Economics. Explained.  

Category » Employment

Initial Unemployment Claims

July 10, 2019

Initial unemployment claims fell 13 thousand in the week ending July 6 to 209 thousand.  The four-week average of claims declined 4 thousand to 219 thousand.  The 4-week average for the week of April 13 of 202 thousand was the lowest for the current business cycle and  the lowest 4-week average level of claims since November, 1969 when it was 200 thousand.  The current low level of claims indicates clearly that the trend rate of increase in employment of about 180 thousand remains intact.

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 219 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 180 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 close to 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 youth unemployment rate today is close to 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 rose 6 thousand  in the week ending June 29 to 1,723 thousand.  The 4-week moving average rose 6 thousand to 1,695 thousand.  This series hit a low of 1,654 thousand in late October of last year.

The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.7%; potential growth has probably picked up from 1.8% a couple of years ago to perhaps 2.5% 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

July 9, 2019

The  Labor Department reported that job openings fell 0.7% in May to 7,323 thousand after declining 1.4% in April, but those back-to-back declines follow an increase of 4.6% in March.  As we see it, job openings seem to be bouncing around from month to month at a very elevated level.  Indeed, there are far more job openings today than there were prior to the recession (4,123 thousand in December 2007).   There were 5.9 million people unemployed in May.

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 10 years.

In  this same report the Labor Department indicated that the quit rate in April was  at 2.3 which is the highest level since January 2001.   It has been at that level since June of last year.  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 2.3.  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.

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

July 5, 2019

Private employment for June rose 191 thousand after having climbed a modest 83 thousand in May.   A better reading of what is truly going on is typically represented by the  3-month moving average of private employment which is now 156 thousand.  To us, the pace of hiring has slowed from 215 thousand per month last year, to about 160 in the first  half of this year.  Thus, we are  now seeing employment gains of 160 thousand.  That is exactly what one would expect if the economy is truly at full employment.  There are simply not enough adequately trained workers available to hire.  Labor force growth rose 100 thousand in the past year.  With employment gains continuing to exceed growth in the labor force, the unemployment rate should continue to decline slowly.

Amongst the various employment categories construction employment rose 21 thousand in June after having risen 5 thousand in May.  The trend increase in construction employment appears to be about 20 thousand per month.

Manufacturing employment climbed by 17 thousand in June after having risen 3 thousand in May .    Factory employment is now rising by about 15 thousand per month.  It is struggling as the recently imposed tariffs take a toll on growth in the goods sector.

Elsewhere, health care  climbed by 35 thousand.  Professional and business services increased 51 thousand in June.   Transportation and warehousing employment rose 24 thousand.  Employment in leisure and hospitality establishments climbed 8 thousand.  Financial services gained 2 thousand workers.  Retail jobs declined 6 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 was unchanged in both May and June at 34.4 hours.  It has been bouncing around between 34.4 and 34.5 hours for the past year.  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 0.2% in June.  This index climbed by 1.8% in the first quarter and now 0.6% in the second quarter, which when combined with a 0.9% projected increase in productivity would produce our projected 1.5% GDP growth rate in that quarter (which follows 3.1% GDP growth in the first quarter).

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.   The stock market had a tough couple of months late last year but has completely recovered and stands at a record  high level.    Consumer confidence fell in the fourth quarter but it, too, has recovered and now stands at a 15-year high.

The sectors of the economy that remains under pressure are the various production industries.  That is climbing but very slowly.  As noted earlier, factory employment is barely increasing.  Construction employment has been rising slowly but steadily.  Mining employment has been rising by about 5 thousand per month.  The service sector, however, is booming.

Looking ahead, steady consumer spending and continued rapid growth rate in investment should cause  GDP to grow 2.6% this year.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

July 5, 2019

Payroll employment for June rose 224 thousand after having climbed a modest 72 thousand in May.   A better reading of what is truly going on is typically represented by the  3-month moving average of private employment which is now 171 thousand.  To us, the pace of hiring has slowed from 215 thousand per month last year, to about 160 in the first  half of this year.  Thus, we are  now seeing employment gains of 160 thousand.  That is exactly what one would expect if the economy is truly at full employment.  There are simply not enough adequately trained workers available to hire.  Labor force growth rose 100 thousand in the past year.  With employment gains continuing to exceed growth in the labor force, the unemployment rate should continue to decline slowly.

Amongst the various employment categories construction employment rose 21 thousand in June after having risen 5 thousand in May.  The trend increase in construction employment appears to be about 20 thousand per month.

Manufacturing employment climbed by 17 thousand in June after having risen 3 thousand in May .    Factory employment is now rising by about 15 thousand per month.  It is struggling as the recently imposed tariffs take a toll on growth in the goods sector.

Elsewhere, health care  climbed by 35 thousand.  Professional and business services increased 51 thousand in June.   Transportation and warehousing employment rose 24 thousand.  Employment in leisure and hospitality establishments climbed 8 thousand.  Financial services gained 2 thousand workers.  Retail jobs declined 6 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 was unchanged in both May and June at 34.4 hours.  It has been bouncing around between 34.4 and 34.5 hours for the past year.  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 0.2% in June.  This index climbed by 1.8% in the first quarter and now 0.6% in the second quarter, which when combined with a 0.9% projected increase in productivity would produce our projected 1.5% GDP growth rate in that quarter (which follows 3.1% GDP growth in the first quarter).

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.   The stock market had a tough couple of months late last year but has completely recovered and stands at a record  high level.    Consumer confidence fell in the fourth quarter but it, too, has recovered and now stands at a 15-year high.

The sectors of the economy that remains under pressure are the various production industries.  That is climbing but very slowly.  As noted earlier, factory employment is barely increasing.  Construction employment has been rising slowly but steadily.  Mining employment has been rising by about 5 thousand per month.  The service sector, however, is booming.

Looking ahead, steady consumer spending and continued rapid growth rate in investment should cause  GDP to grow 2.6% this year.

Stephen Slifer

NumberNomics


Unemployment Rate

July 5, 2019

The unemployment rate rose 0.1% in June to 3.7% (3.67% to be precise) after having been unchanged in May.   At 3.7% the unemployment remains close to its lowest level since December 1969  — almost 50 years ago.  The labor force rose 335 thousand in June.  The economy created jobs for 247 thousand of them.  As a result, the number of unemployed workers rose 87 thousand in June.  Thus, the unemployment rate edged upwards to 3.7%.  While employment used in calculating the unemployment rate rose 247 thousand, payroll employment increased by 224 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 somewhat in June.  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 is now 0.5% which is identical to growth in the population which was also 0.5%.  Thus, the labor force participation rate was unchanged during that period of time.  It is now 62.9%.  A year ago it was 62.9%.  In 2018 the labor force rose 1.6% in 2018 versus 0.6% in 2017.  It would appear that the relatively rapid pace of GDP growth last year attracted some previously unemployed workers into the labor force, but in the first half of 2019 that process has largely come to a halt.

At 3.7% the unemployment rate is far below the 4.2% 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 is essentially  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 rate rose 0.1% in June to 7.2%.  At 7.2% 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 rose 0.1% in June to 7.2% which 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.  But the number of part time workers who say they want full time employment is roughly in line with where it was going into the recession.

In short, both rates should continue to fall slowly 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.  Thus far the 1.5% increase in wages is being completely offset by a 2.4% increase in productivity such that “unit labor costs” (or labor costs adjusted for the increase in productivity) have declined 0.9% in the past year.  Thus, the seemingly tight labor market is not generating any upward pressure on the inflation rate.

Stephen Slifer

NumberNomics

Charleston, SC


Nonfarm Workweek

July 5, 2019

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 June rose 224 thousand after having climbed by 72 thousand in May.  These numbers tend to bounce around on a month-to-month basis, especially at this time of the year, as the seasonal workers are hired and then let go.  The 3-month average increase in employment of 171 thousand is probably more representative of the average growth rate for jobs.  That is slower than the 200+ thousand workers hired monthly last year.  But that is also what one would expect when the economy is at full employment.   Qualified workers become very difficult to find.

The nonfarm workweek was unchanged in both May and June at 34.4 hours.  This series has been bouncing around between 34.4 and 34.5 hours for the past year.  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 0.2% in June.  This index rose 1.8% in the first quarter and has now climbed 0.6% in the second quarter which, when combined with a projected 0.9% increase in productivity, should produce a GDP growth rate of 1.5% in the second quarter after having risen 3.1% in the first quarter.  That means that the economy grew at roughly a 2.3% pace in the first half of the year.

The factory workweek rose 0.1 hour in June to 40.7 hours after having been unchanged in May.  This series is a bit lower than it has been, but it remains at a relatively elevated level and will lead to additional factory hiring in the months ahead.  With individual and corporate tax cuts continuing to impact growth this year and U.S. firms able to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector should continue to climb at a moderate pace this year, but the recently imposed tariffs are taking a toll on growth in this sector.

Overtime hours were unchanged in June  at 3.4 hours.  Like the factory workweek this series, too, is relatively long but has slowed somewhat.  The manufacturing sector is still expanding, but at a slower pace than last year because of the impact from tariffs.

The economy continues to expand at a respectable pace.  We currently expect GDP to increase 2.6% this year after having risen 3.0% in 2018 given the continuing impact of 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 continuing rapid growth in investment, but losing momentum in the manufacturing sector.

Stephen Slifer

NumberNomics

Charleston, SC


Average Hourly Earnings

July 5, 2018

Average  hourly earnings rose 0.2%in June to $27.90 after having risen 0.3% in May.  Hourly earnings are gradually accelerating.  During the past year hourly earnings have risen 3.1%.  This almost matches 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 3.7% pace.  This series has been growing somewhat more quickly than the official hourly earnings data for some time and, therefore, seems more consistent with the apparent tightness in the labor market.

In addition to their hourly wages workers can also work longer hours and/or overtime.  Increases in their total income are captured by the increase in weekly earnings.  Weekly earnings rose 0.2% in June to $959.76 after  having climbed 0.3% in May.  Average weekly earnings have risen 2.8% during the course of the past year.  Wages  appear to be rising at a moderate pace consistent with a 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 fallen 0.9% with a 1.5% increase in compensation more than offset by a 2.4% 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 declining, the tight labor market is clearly not putting upward pressure on the inflation rate and, perhaps, could be pushing it lower.  All of the increase in wages is being offset by an increase in productivity.

Stephen Slifer

NumberNomics

Charleston, SC

 

 


Average Duration of Unemployment

July 5, 2019

The average duration of unemployment fell 1.9 weeks in June to 22.2 after having risen 1.2 weeks in May.  This series bounces around from month to month, but it does seem to have flattened out in the past couple of months.  The January level of 20.5 was the shortest average length of time workers remain unemployed since February 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 1.41 million workers have been jobless for 27 weeks or longer, and that represents 23.7% of all unemployed workers.

The average duration of unemployment should 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

July 3, 2019

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 65 thousand.  So while it is not perfect, it does have a respectable track record.

The ADP survey said that employment rose 102 thousand in June after having risen 41 thousand in May and 255  thousand in April  In the most recent 3-month period employment has risen 152 thousand.   On Friday we expect the BLS to report that private sector employment rose  about 150 thousand in May.  Clearly, the May increase in ADP employment was the smallest gain since the expansion began.  But just keep in mind that it followed a much-larger-than-expected increase for April of 271 thousand.  The 3-month moving average of ADP employment stands at 133 thousand so the employment gains could be slowing somewhat, but it is largely because workers are so hard to find — not because the economy is weakening.

Jobs in goods-producing industries  fell 15 thousand in June after declined 24 thousand in May   —  construction employment fell 18 thousand, mining fell by 4 thousand,  and manufacturing rose 7 thousand.   Service providers boosted payrolls by 117 thousand in June after rising 65 thousand in May.  The June increase was led by an increase of 16 thousand in professional services,  39 thousand in health care,  12 thousand in administration and support, an increase of 16 in education, an increase of 3 thousand jobs in leisure and hospitality, an increase of 23 thousand in trade, transportation, and utility workers, and a 7 thousand increase in financial services.

With the labor force rising very slowly, employment gains of 180 thousand or so will continue to slowly push the unemployment rate lower.  The unemployment rate currently is 3.6% at a 50-year low and well below the full employment threshold.  As a result we are beginning to see more and more shortages of available workers.  However, at this point most of the upward pressure on wages is being countered by a corresponding increase in productivity.   Over the past year unit labor costs, or labor costs adjusted for the increase in productivity fell 0.8%.  Despite the seemingly tight labor market there is no upward pressure on the inflation rate.

The stock market has rebounded, set a new record high level.   Interest rates will remain steady of even decline through the end of the year.  Consumers remain confident.  Corporate earnings are solid.  The economy is still receiving some stimulus in the form of both individual and corporate income taxes.  Thus, our conclusion is that the economy will expand by  2.6% in 2019 after having risen 3.0% last year.

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