Thursday, 24 of May of 2018

Economics. Explained.  

Private Employment

May 4, 2018

Private sector employment for April rose 168 thousand after having climbed by 135 thousand in March.  The April increase was smaller than the expected increase of about 190 thousand, but the March figure was revised upwards from 102 thousand initially to 135 thousand.  Thus, the outlook for employment has not changed much in the wake of this report.  The March and April softness in employment is inconsistent with other labor market indicators like initial unemployment claims which are at their lowest level since 1973, the ADP employment report which continues to show monthly gains in excess of 200 thousand, and the very long length of the nonfarm workweek and extremely high level of factory overtime hours.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 208 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 110 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 17 thousand in April after having fallen 10 thousand in March.    The trend increase in construction employment appears to be about 25 thousand per month.

Manufacturing employment rose by 24 thousand in April after having increased 22 thousand in March.    Factory employment is now rising by about 25 thousand per month.

Mining rose by 8 thousand in March and April.  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 24 thousand.  Professional and business services increased 54 thousand in April.  Retail jobs rose by 2 thousand.  Employment in leisure and hospitality establishments increased 18 thousand in April.  And jobs in the financial industry climbed by 2 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 for April was unchanged at  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 0.3% in April after having risen 0.2% in March.  It continues to climb at a steady pace.

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 in the midst of a correction as concerns about a trade war and corporate earnings are market investors jittery.  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 2.5% in 2017 to 2.8% in 2018.

Stephen Slifer


Charleston, SC

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