Monday, 11 of December of 2017

Economics. Explained.  

Category » Employment

Private Employment

December 8, 2017

Private sector employment for November rose 221 thousand after having risen 247 thousand in October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 173 thousand.  That compares to an average increase of 170 thousand last year.  Thus, employment continues to chug along.  The labor force is growing by about 100 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 24 thousand in November after having risen 10 thousand in October.   The trend increase in construction employment appears to be about 15 thousand per month.

Manufacturing employment jumped 31 thousand in November after having risen 23 thousand in October    Factory employment is now rising and seems to be accelerating.  We think the trend increase is currently about 15 thousand per month.

Mining rose by 5 thousand in November after having risen 2 thousand in October.  After a long period of steady declines mining employment is now rising about 5 thousand per month.

Elsewhere, health care climbed by 30 thousand.  Professional and business services continued to trend higher and increased 46 thousand in November.  Retail jobs increased by 19 thousand.  Employment in leisure and hospitality establishments rose 14 thousand in November.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In November the nonfarm workweek rose 6 minutes or 0.1 hour to 34.5 hours.  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 November after having risen 0.3% in the previous month.  Assuming a further moderate increase in December this index should increase 3.0% in the fourth quarter.  Assuming a modest increase in productivity (which is now rising), it appears that fourth quarter GDP growth should be at least 3.5% which would be the third consecutive quarter with GDP growth in excess of the 3.0% mark.  That has not happened since prior to the recession.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts are likely later this year or in 2018.  The stock market is at a record high level.  Consumer confidence is holding up well.  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 seems to be changing.  As noted earlier, factory employment is rising modestly.  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 its 2016 pace of 2.2% to 2.6% in 2017 and 2.9% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

December 8, 2017

Payroll employment for November rose 228 thousand after having risen 244 thousand in October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 170 thousand.  That compares to an average increase of 187 thousand last year.  Thus, employment continues to chug along.  The labor force is growing by about 100 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 24 thousand in November after having risen 10 thousand in October.   The trend increase in construction employment appears to be about 15 thousand per month.

Manufacturing employment jumped 31 thousand in November after having risen 23 thousand in October    Factory employment is now rising and seems to be accelerating.  We think the trend increase is currently about 15 thousand per month.

Mining rose by 5 thousand in November after having risen 2 thousand in October.  After a long period of steady declines mining employment is now rising about 5 thousand per month.

Elsewhere, health care climbed by 30 thousand.  Professional and business services continued to trend higher and increased 46 thousand in November.  Retail jobs increased by 19 thousand.  Employment in leisure and hospitality establishments rose 14 thousand in November.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In November the nonfarm workweek rose 6 minutes or 0.1 hour to 34.5 hours.  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 November after having risen 0.3% in the previous month.  Assuming a further moderate increase in December this index should increase 3.0% in the fourth quarter.  Assuming a modest increase in productivity (which is now rising), it appears that fourth quarter GDP growth should be at least 3.5% which would be the third consecutive quarter with GDP growth in excess of the 3.0% mark.  That has not happened since prior to the recession.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts are likely later this year or in 2018.  The stock market is at a record high level.  Consumer confidence is holding up well.  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 seems to be changing.  As noted earlier, factory employment is rising modestly.  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 its 2016 pace of 2.2% to 2.6% in 2017 and 2.9% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment Rate

December 8, 2017

The unemployment rate was unchanged in November at 4.1% after having declined 0.1% in October    In November the labor force rose 148 thousand.  Employment climbed by 57 thousand.  As a result, the number of unemployed workers rose by 90 thousand.

Labor force growth in the past year was 0.7% which is only 0.1% faster than growth in the population which was 0.6%.

At 4.1% the unemployment rate is below the low end of the 4.5-5.0% 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 and is now roughly in line with where 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 rose 0.1% in November to 8.0% after having declined 0.4% in October. That puts it almost exactly 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  8.0% compares to 4.1% 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.  It did rise somewhat in November but that probably reflects seasonal adjustment difficulties caused by hiring of temporary workers during the Christmas season.

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 slightly 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 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 could, 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

December 8, 2017

Payroll employment for November rose 228 thousand after  having jumped 244 thousand in October.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In November the nonfarm workweek rose 6 minutes or 0.1 hour to 34.5 hours which is about as long as it gets.  Because employers are having a hard time finding an adequate number of workers, they are choosing to work their existing employees longer hours to boost production enough to satisfy demand.

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 0.5% in November after having risen 0.3% in October.  Assuming a further modest increase in December this index should increase by about 3.0% in the fourth quarter.  If productivity rises by a moderate amount (it is now increasing), GDP growth in the fourth quarter should be about 3.5%.  If correct, that would be the third consecutive quarter that GDP growth has exceeded the 3.0% mark.  That has not happened since before the recession.

The factory workweek was unchanged in November at 40.9 hours after having risen 0.1 hour in October   This is about as high as it gets and will lead to additional factory hiring in the months ahead.  With the prospect of both individual and corporate tax cuts likely later this year or in 2018, and U.S. firms perhaps being allowed to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector is gathering  momentum.

Overtime hours were unchanged in November at 3.5 hours after having risen 0.2 hour in October.  This series, too, is about as long as it gets.

The economy continues to expand at a respectable pace.  We currently expect GDP to quicken from 2.2% last year to a 2.6% pace in 2017 and 2.9% 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

December 8, 2017

Average  hourly earnings rose 0.2% in November after having declined 0.1% in October.  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 2.5%.  Hourly wages appear to be  gradually 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.  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 3.4% pace which seems to make more sense given the apparent tightness in the labor market..

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 jumped 0.5% in November after having declined 0.1% in October.  Weekly wages have risen 3.1 during the course of the past year.

While there has been a lot of discussion about the lack of growth in wages, they appear to be rising a bit more quickly and are able to support a moderate sustained 2.5% pace of consumer spending.

Stephen Slifer

NumberNomics

Charleston, SC

 

 


Average Duration of Unemployment

December 8, 2017

The average duration of unemployment fell 0.6 week in November to 25.4 weeks after having declined 0.8 week in October.

While the unemployment rate has fallen by 5.9% 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 1.58 million workers have been jobless for 27 weeks or longer, and that represents 23.8% 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


Initial Unemployment Claims

December 7, 2017

Initial unemployment claims declined 2 thousand in the week ending December 2 to 236 thousand after having fallen 2 thousand in the previous week.  The 4-week moving average is at 242 thousand.  Thus, claims remain close to the lowest level in this cycle which was 231 thousand back in early November which, in turn, was the lowest average since March 31, 1973 when it was 228 thousand.

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 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 will be forced to offer some of their part time workers full time positions.  This series is still a bit 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 the lowest it has been in 17 years 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 — roughly in line with where it was going into the recession.

The number of people receiving unemployment benefits declined 52 thousand in the week ending November 25 to 1,908 thousand.  The four week moving average rose 1 thousand to 1,913 thousand which is close to the lowest level for this 4-week average since January 12, 1974 when it was 1,881.   The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.5%; potential growth is  projected to be about 1.8%.  Thus, going forward  the unemployment rate will continue to decline slowly.

Stephen Slifer

NumberNomics

Charleston, SC


ADP Employment

December 6, 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 61 thousand.  So while it is not perfect, it does have a respectable track record.

In November the ADP survey showed an increase of 190 thousand jobs after jumping by 235 thousand jobs in October (a post-hurricane rebound).  Over the past three months  the trend rate of ADP employment is 174 thousand.    On Friday BLS will release the payroll employment statistics for November.  We look for an increase of about 190 thousand.

Jobs in goods-producing industries  rose 36 thousand in November following an increase of 85 thousand in October–  construction employment declined 4 thousand, mining was unchanged,  and manufacturing jumped by 40 thousand.   Service providers boosted payrolls by 155 thousand in November after rising by 150 thousand in October.  The  November  increase was led by an increase of 47 thousand in professional and business jobs,  31 thousand in health care, 23 thousand in education,  25 thousand jobs in leisure and hospitality, and an increase of 36 thousand jobs in trade, transportation, and utility workers.

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 4.1% which is 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 is near a record high level.  Interest rates remain low in the U.S..  Consumers remain confident.  Gasoline prices  are now steady at about  $2.40 per gallon. Corporate earnings are at a near record high level.  Firms are flush with cash.  And the economy could soon receive 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 2017 and 2.9% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment vs. Job Openings

November 7, 2018

This release is 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 were unchanged in September at 6,093 thousand after having declined 0.8% in August.    It is worth noting that there are more job openings today than there were prior to the recession (4,123 thousand in December 2007).   There were 6.8 million people unemployed in September.

As shown in the chart below, there are currently 1.1 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 better shape now than it was prior to the recession.

In  this same report the Labor Department indicated that the quit rate rose by 0.1 in September to 2.2 after having declined 0.1 in August.  The highest reading thus far in the business cycle of 2.2 has been attained on several occasions in recent months.  This series has been bouncing around between 2.1 and 2.2 for the  past two years.  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 2.2 at the beginning of the recession it was at 2.0.  Thus, it is not clear exactly how high this series can go.  Probably not a lot higher.

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 (the green line) have been rising rapidly (and are 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 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


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