Tuesday, 16 of July of 2019

Economics. Explained.  

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


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