Sunday, 26 of March of 2017

Economics. Explained.  

Category » Employment

Initial Unemployment Claims

March 23, 2017

Initial Unemployment Claims

Initial unemployment claims rose 15 thousand in the week ending March 19 to 258 thousand after having declined 6 thousand in the previous week.  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 rose 4 thousand to 243 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 265 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.

Unemployment Rate -- Part Time Economic Reasons

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.

Unemployment Rate -- Youth

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.

Unemployment Rate -- Discouraged Workers

The number of people receiving unemployment benefits declined 39 thousand in the week ending March 11 to 2,000 thousand.  The four week moving average fell 16 thousand to 2,043 thousand. The low for the cycle for this series was 2,024 thousand back in November 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 2.0%; potential growth is  projected to be about 1.8%.  Thus, going forward  the unemployment rate will decline quite slowly.

People Receiving Benefits

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment vs. Job Openings

March 16, 2017

Unemployment vs. Job Openings

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 rose 1.6% in January to 5,626 after having declined a similar amount in December.    It is worth noting that there are more job openings today than there were prior to the recession.   There were 7.6 million people unemployed in December.

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.

Unemployment vs. Job Openings (Ratio)

In  this same report the Labor Department indicated that the quit rate rose to 2.2 in January  which is 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 2.2; at the beginning of the recession it was at 2.0.

Unemployment vs. Job Openings (Quit Rate)

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.

Unemployment vs. Job Openings and Hires

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?

Unemployment vs. Job Openings -- Openings to Hires Ratio

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

March 10, 2017

Payroll Employment -- Private -- 3 month average

Private sector employment for February rose 227 thousand after having risen 221 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 199 thousand.

Amongst the various employment categories the accelerating employment gains are most noticeable in the production industries.  For example, construction employment jumped by 58 thousand.

Payroll Employment -- Construction

Manufacturing employment added 28 thousand jobs.

Payroll Employment -- Manufacturing

Mining climbed by 8 thousand.  It has risen 20 thousand since reaching a low in October of last year.

Elsewhere, private educational services rose by 29 thousand.  Health care climbed by 27 thousand.  Professional and business services continued to trend upward and rose 37 thousand in February.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In February the nonfarm workweek was unchanged at 34.4 hours.

Nonfarm Workweek

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.  Consumer spending on cars and houses in particularly is robust and has shown no sign of slippage.  These are the two biggest ticket items in the consumer’s budget.  They are typically the sectors that would experience a slowdown first and that is not happening.  Remember, too, 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

March 10, 2017

Payroll Employment

Private sector employment for February rose 235 thousand after having risen 238 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 209 thousand.

Amongst the various employment categories the accelerating employment gains are most noticeable in the production industries.  For example, construction employment jumped by 58 thousand.

Payroll Employment -- Construction

Manufacturing employment added 28 thousand jobs.

Payroll Employment -- Manufacturing

Mining climbed by 8 thousand.  It has risen 20 thousand since reaching a low in October of last year.

Elsewhere, private educational services rose by 29 thousand.  Health care climbed by 27 thousand.  Professional and business services continued to trend upward and rose 37 thousand in February.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In February the nonfarm workweek was unchanged at 34.4 hours.

Nonfarm Workweek

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.  Consumer spending on cars and houses in particularly is robust and has shown no sign of slippage.  These are the two biggest ticket items in the consumer’s budget.  They are typically the sectors that would experience a slowdown first and that is not happening.  Remember, too, 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

March 10, 2017

Unemployment Rate

The unemployment rate declined in February to 4.7% after having risen 0.1% in January.    In February the labor force rose 340 thousand. Employment jumped by 447 thousand.  As a result, the number of unemployed workers fell by 107 thousand.

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 be losing some momentum and labor force growth has slowed to about 0.7% in recent months.

Unemployment Rate -- Labor Force

At 4.7% 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.

Unemployment Rate -- Marginally Attached

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 0.2%% in February to 9.2%. That compares to 4.7% for the official rate.

Unemployment Rate -- Broad

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.

Unemployment Rate -- Youth

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 steadily declining.

Unemployment Rate -- Part Time Economic Reasons

In short, both rates should continue to fall in the months ahead and by midyear both rates are likely to be at or below their full-employment threshold.  In that world labor shortages are likely to become 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.

Unemployment Rate -- Broad Projected

Stephen Slifer

NumberNomics

Charleston, SC


Nonfarm Workweek

March 10, 2017

Nonfarm Workweek

Payroll employment rose by 235 thousand in February after having risen 238 thousand in January.  The three-month average increase in payroll employment stands at 209 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 January the nonfarm workweek was unchanged at 34.4 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 0.2 in February to 106.6. As a result, the economy should expand at about a 2.4% pace in the first quarter which is slightly faster than the 2.0% pace that was recorded last year.

Payroll Employment -- Aggregte Hours Index

The factory workweek was unchanged in February at 40.8 hours.  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.

Nonfarm Workweek -- Manufacturing

Overtime hours were unchanged in February at 3.3 hours.

Nonfarm Workweek -- Overtime

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

March 10, 2017

Average Hourly Earnings

Average  hourly earnings rose 0.2% in February to $26.09 after having risen 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 2.8%.  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 both January and February.  Weekly wages have risen 2.5% during the course of the past year.

Average Weekly Earnings

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

March 10, 2017

Average Duration of Unemployment

The average duration of unemployment was unchanged  in February at 25.1 weeks.

While the unemployment rate has fallen by 5.3% 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 1.80 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


ADP Employment

March 8, 2017

ADP Employment vs. Payroll Employment

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 February the ADP survey showed an increase of 298 thousand jobs following a revised 261 thousand increase in January, 201 thousand in December and 226 thousand in November.   Over the past three months  the trend rate of ADP employment is 253 thousand.    On Friday BLS will release the payroll employment statistics for November.  We look for an increase of about 250 thousand.

ADP Employment vs. Payroll Employment -- Table

Jobs in goods-producing industries which includes manufacturers and builders jumped 106 thousand, a record increase for a series going back to 2002.  That follows an increase of 55 thousand in January.  Service providers boosted payrolls by 193 thousand in February following a 207 thousand increase in January.  Clearly, relatively warm weather boosted the overall gain (construction employment, for example, jumped 66 thousand),  but that does not explain four consecutive months with employment gains in excess of 200 thousand.  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 4.8% 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 at 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