Tuesday, 22 of January of 2019

Economics. Explained.  

Payroll Employment

January 4, 2019

Payroll employment for December jumped 312 thousand in December after having risen a disappointing 176 thousand in November. One month was smaller than anticipated.  The next month produced an outsized gain.  The outlook for employment has not changed much in the wake of this report.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 254 thousand.  That compares to an average increase of 175 thousand in 2017.  Thus, employment continues to chug along.  Labor force growth has picked up an average monthly increase of 83 thousand in 2017 to 217 thousand in 2018.  Thus, it appears that the relatively rapid GDP growth in 2018 has lured some workers back into the labor force.  That makes it easier for employers to sustain monthly increases in employment of about 200 thousand.

Amongst the various employment categories construction employment rose 38 thousand in December after having been unchanged in November.    The trend increase in construction employment appears to be about 25 thousand per month.

Manufacturing employment climbed by 32 thousand in December following an increase of 27 thousand in November.    Factory employment is now rising by about 25 thousand per month.

Mining rose 4 thousand in December after having been unchanged in November.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care  climbed by 50 thousand.  Professional and business services increased 43 thousand in December.  Employment in leisure and hospitality establishments rose 41 thousand in December.  Retail jobs rose 24 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 rose 0.1 hour to 34.5 hours in December after a similar-sized decline in November.  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 0.4% in December after having fallen 0.2% in November.  This index rose 2.1% in the fourth quarter.  Assuming a small increase in productivity we continue to anticipate a 2.6% GDP growth rate in the fourth quarter.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market has had a tough couple of months but the economic fundamentals continue to look solid so we expect it to resume its rise in the months ahead.  Consumer confidence is holding up well and has largely shrugged off the recent declines in the stock market.  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 has now turned upwards.  As noted earlier, factory employment is climbing at a moderate pace.  Construction employment has been rising steadily.  And even mining has been rising slowly.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas GDP growth should rise 2.8% this year versus 3.1% in 2018.

Stephen Slifer


Charleston, SC

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