Monday, 16 of July of 2018

Economics. Explained.  

Payroll Employment

July 6, 2018

Payroll employment for June rose 213 thousand after having risen 244  thousand in May.   Thus, 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 employment which is now 211 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 150 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 13 thousand in June after having climbed 29 thousand in May.    The trend increase in construction employment appears to be about 25 thousand per month.

Manufacturing employment climbed by 36 thousand in June after having increased 19 thousand in May.    Factory employment is now rising by about 25 thousand per month.

Mining increased 5 thousand in June after having risen 6 thousand in May.  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 35 thousand.  Professional and business services increased 50 thousand in June.  Transportation and warehousing gained 15 thousand.  Employment in leisure and hospitality establishments increased 25 thousand in June.  And jobs in the financial industry climbed by 8 thousand.  On the flip side, retail jobs declined 22 thousand in June.

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 for June was unchanged at  34.5 hours.  That is the fifth straight month at that level and it 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 0.2% in both May and June after having climbed 0.1% in April.  Thus, it rose 2.3% in for the second quarter as a whole and continues to climb at a steady pace.  If second quarter GDP growth turns out to be between 3.5-4.0%, then productivity growth for the quarter should be between 1.2-1.7%.

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 2018.  The stock market is rebounding following a correction and is now just 3% below its previous peak.  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 2.6% in 2017 to 3.0% in 2018.

Stephen Slifer


Charleston, SC

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