Sunday, 30 of April of 2017

Economics. Explained.  

Category » Employment

Initial Unemployment Claims

April 27, 2017

Initial unemployment claims rose 14 thousand in the week ending April 22 to 257 thousand.  Because these weekly data can be volatile the focus should be on the 4-week moving average of claims (shown above), which is a less volatile measure.  It fell 1 thousand to 242 thousand.  The late February average of 234 thousand was the lowest level for this series since April 14, 1973 — 44 years ago!

Ordinarily, with initial unemployment claims (the red line on the chart below, using the inverted scale on the right) at 242 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 170 thousand.

Initial Unemployment Claims vs. Employment

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 will be forced to offer some of their part time workers full time positions.  This series is still high relative to where it was going into the recession.

They will also have to think about hiring  some of our youth (ages 16-24 years) .  But the youth unemployment rate today is lower than where it was going into the recession so there may not be too 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.

The number of people receiving unemployment benefits rose 10 thousand in the week ending April 15 to 1988 thousand.  The four week moving average fell 16 thousand to 2,007 thousand. This is the lowest level for this series since June 10, 2000.  The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.0%; potential growth is  projected to be about 1.8%.  Thus, going forward  the unemployment rate will decline quite slowly.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment vs. Job Openings

April 11, 2017

This release in generally rather obscure.  But. Fed Chairwoman Janet Yellen often refers to data from it so its importance has increased in recent years.

The  Labor Department reported that job openings jumped 3.2% in February to 5,743 thousand after having declined 1.5% in January.    It is worth noting that there are more job openings today than there were prior to the recession.   There were 7.5 million people unemployed in February.

As shown in the chart below, there are currently 1.3 unemployed workers for every available job.   Prior to the recession this ratio stood at 1.7 so the labor market (at least by this measure) is in as good shape now as it was prior to the recession.

In  this same report the Labor Department indicated that the quit rate declined .01 in February to 2.1 in February which remains within an eyelash of being the highest reading thus far in the business cycle.  This is a measure of the number of people that voluntarily quit their jobs in that  month.  It is another series that Janet Yellen likes to talk about.  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 2.1; at the beginning of the recession it was at 2.0.

There is one other point that should be made about this report.  Janet Yellen claims that there are 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 have been rising rapidly (and are considerably higher now than they were prior to the recession); hires have been rising far 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 that 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 year 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

April 7, 2017

Private sector employment for March rose 89 thousand after having risen 221 thousand in February and 204 thousand in January.  A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 171 thousand.  The month-to-month swings in the first quarter were largely attributable to much-warmer-than-normal weather in January and February followed by a more normal March.  The three month average should be largely unaffected and continues to show steady employment gains of about 170 thousand per month.

Amongst the various employment categories construction employment has picked  up noticeably since September of last year.  It rose 6 thousand in March but that follows gains of 34 thousand and 59 thousand in the first two months of the year.  The weather effect described above is most noticeable in this particular employment category.

Manufacturing employment added 11 thousand jobs in March.

Mining climbed by 11 thousand.  It has risen 36 thousand since reaching a low in October of last year.

Elsewhere, health care climbed by 14 thousand.  Professional and business services continued to trend upward and rose 56 thousand in March.  Financial services climbed by 9 thousand in March.  On the flip side retail employment declined 30 thousand in March.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In March the nonfarm workweek was unchanged at 34.3 ours.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual income tax cuts seem likely later this year.  Consumer confidence is holding up well.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that has been weak has been the various production industries.  But that seems to be changing.  As noted earlier, factory employment has risen sharply in each of the past three months.  Construction employment has also been accelerating.  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 growth from its current 2.0% pace to 2.4% in 2017 and 2.7% in 2017.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

April 7, 2017

Private sector employment for March rose 98 thousand after having risen 219 thousand in February and 216 thousand in January.  A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 178 thousand.  The month-to-month swings in the first quarter were largely attributable to much-warmer-than-normal weather in January and February followed by a more normal March.  The three month average should be largely unaffected and continues to show steady employment gains of about 170 thousand per month.

Amongst the various employment categories construction employment has picked  up noticeably since September of last year.  It rose 6 thousand in March but that follows gains of 34 thousand and 59 thousand in the first two months of the year.  The weather effect described above is most noticeable in this particular employment category.

Manufacturing employment added 11 thousand jobs in March.

Mining climbed by 11 thousand.  It has risen 36 thousand since reaching a low in October of last year.

Elsewhere, health care climbed by 14 thousand.  Professional and business services continued to trend upward and rose 56 thousand in March.  Financial services climbed by 9 thousand in March.  On the flip side retail employment declined 30 thousand in March.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In March the nonfarm workweek was unchanged at 34.3 ours.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual income tax cuts seem likely later this year.  Consumer confidence is holding up well.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that has been weak has been the various production industries.  But that seems to be changing.  As noted earlier, factory employment has risen sharply in each of the past three months.  Construction employment has also been accelerating.  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 growth from its current 2.0% pace to 2.4% in 2017 and 2.7% in 2017.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment Rate

April 7, 2017

The unemployment rate declined 0.2% in March to 4.5% after having fallen 0.1% in February.    In March the labor force rose 145 thousand. Employment jumped by 472 thousand.  As a result, the number of unemployed workers fell by 326 thousand.  Note that employment from the so-called “household” survey for March rose 472 thousand while payroll employment rose by just 98 thousand in that month The former category includes self-employed workers not included on the payroll report.  Given that result, one should not attach any significance to the smaller-than-expected increase in payroll employment.

Labor force growth picked up from about 0.5% in 2015 to 1.9% by September of last year as the faster pace of economic activity appears to have enticed some people who had given up looking for a job back into the labor force.  However, that process seems to have lost momentum and labor force growth has slowed to about 0.6% in recent months.

At 4.5% the unemployment rate is below the low end of the 5.0% level that the Fed considers to be full employment.  However, some have suggested that the official rate is 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 but remains somewhat higher than it was going into the recession.

Fed Chairwoman Yellen has told us we should be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad rate fell 0.3% in March to 8.9% after having declined 0.2% in February. That compares to 4.7% 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 lower than it was going into the recession.

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 more success here.  The number of part time workers who say they want full time employment is still higher than it was going into the recession although it is gradually declining.

In short, both rates should continue to fall in the months ahead and are already at or 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 will, in turn, 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

April 7, 2017

Payroll employment rose by 98 thousand in March after having risen by 219 thousand in February and 216 thousand in January.  The three-month average increase in payroll employment stands at 178 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In March the nonfarm workweek was unchanged at 34.3 hours.

The increase in employment combined with the workweek produces the aggregate  hours index which is a proxy for how many goods and services were produced in that month.  It rose 0.1 in March to 106.4. As a result, the economy should expand at about a 2.2% pace in the first quarter which is slightly faster than the 2.0% pace that was recorded last year.

The factory workweek fell 0.2% in March to 40.6 hours.  As shown below this series has been fluctuating  between 40.6 and 40.8 hours since the middle of last year.  After a long period of contraction the factory sector is finally showing some signs of life.  With the prospect of both individual and corporate tax cuts likely in 2017, and U.S. firms perhaps being allowed to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector has begin a gradual ascent.

Overtime hours were declined 0.1 hour in March to 3.2 hours.

The economy continues to expand at a respectable pace.  We currently expect GDP to rise at a 2.4% pace in 2017 and 2.7% in 2018 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 has begun to show signs of life.

Stephen Slifer

NumberNomics

Charleston, SC


Average Hourly Earnings

April 7, 2017

Average  hourly earnings rose 0.2% in March to $26.14 after having risen 0.3% in February and 0.2% in January.  After a long period of time during which hourly earnings were stuck around the 2.0% mark, they have gradually begun to rise.  During the past year hourly earnings have risen 2.7%.  Hourly wages are accelerating.  This series 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.

In addition to their hourly wages workers can also work longer hours or overtime hours.  Increases in their total income are captured by the increase in weekly earnings.  Weekly earnings rose 0.2% in March after having been unchanged in February and rising 0.2% in January.  Weekly wages have risen 2.4% during the course of the past year.

While there has been a lot of discussion about the lack of growth in wages, the reality is that have begun to rise more quickly which means that they are growing quickly enough to support a moderate 2.5% pace of consumer spending.

Stephen Slifer

NumberNomics

Charleston, SC

 

 


Average Duration of Unemployment

April 7, 2017

The average duration of unemployment rose 0.2 week in March to 25.3 weeks.

While the unemployment rate has fallen by 5.5% 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 1.67 million workers have been jobless for 27 weeks or longer, and that represents 23.3% 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

April 5, 2017

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

In March the ADP survey showed an increase of 263 thousand jobs following a revised 245 thousand increase in February, 268 thousand in January, and 201 thousand in December.   Over the past three months  the trend rate of ADP employment is 253 thousand.    On Friday BLS will release the payroll employment statistics for March.  We look for an increase of about 250 thousand.

Jobs in goods-producing industries which includes manufacturers and builders jumped 82 thousand — 49 thousand in construction and 30 thousand in manufacturing..  That follows an increase of 100 thousand in February.  Service providers boosted payrolls by 181 thousand in March  following a 145 thousand increase in February.  The March increase was led by an increase of 57 thousand in professional and business jobs, 55 thousand in leisure and hospitality, 34 thousand in trade, transportation, and utilities, and 25 thousand financial jobs.  Something has changed in the labor market since the election.  Presumably, increased optimism following President Trump’s election is causing employers to boost hiring and keep layoffs at a 44-year low.

With the labor force rising very slowly, employment gains of 200 or more thousand will continue to slowly push the unemployment rate lower.  The unemployment rate currently is 4.7% which is below what most economists regard as the full employment threshold.  As a result people are beginning to talk more and more about shortages of available workers, and we will see upward pressure on both wage rates and inflation.

The stock market is near a record high level.  Interest rates remain low in the U.S..  Consumers remain confident.  Gasoline prices  are now steady at about  $2.20 per gallon. Corporate earnings are at a near record high level.  Firms are flush with cash.  And the economy will receive considerable stimulus this year in the form of both individual and corporate income taxes.  Thus, our conclusion is that the economy will expand by 2.4% in 2017 and 2.7% in 2018.

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