June Employment Surge

By Thomas Cooley, Ben Griffy and Peter Rupert

After several months of weakening employment growth the establishment survey from the BLS showed that June payroll employment increased 287,000. The employment number for April was revised up 21,000 for a final reading of 144,000. The weak May employment number was revised down 27,000, however, to a mere 11,000.


Private sector employment was up 265,000 and government up 22,ooo. Almost all of the increase was in private service producing, however, up 256,000. Manufactuing employment rose only slightly, up 14,000 and construction employment was unchanged. Mining and logging employment continued to contract, losing another 5,000.

Mike Feroli observes that, “The swing between the May and June headline payroll numbers only looks extreme by modern standards. Over the past five years the standard deviation of monthly jobs adds was the lowest in the history of a series going back to the 1930s.” Here is a picture of the monthly changes going back as far as the data permit:


Of course that is a lot of data to see, here it goes back to only 1986:


And one more from 2010 on:


The data do show there appears to be decline in volatility and somewhat of a slowing down in employment growth over the past year and half or so and has likely given the FOMC reasons to not act.

The workweek held steady at 34.4 for the fifth straight month and average hourly earnings showed only a slight increase, from $25.59 to $25.61.


The household survey saw an increase in employment of only 67,000 however. With an increase in the civilian labor force of 414,000, the participation rate climbed 0.1 to 62.7 , the employment to population ratio fell from 59.7 to 59.6 and the unemployment rate moved up from 4.692% to 4.899%.




Productivity for the first quarter fell 0.6% at an annual rate, with output increasing 0.9% and hours up 1.5%. This is the second consecutive quarter of a productivity decline, with 2015 QIV falling 1.7%. Compared to other cycles, while productivity has appeared fairly weak, it had been growing at a pace similar to other cycles for the first several years coming out of the recession but then tapered off to a much more moderate growth rate.



The strength of this employment report keeps hopes alive for a rate increase by the FOMC before year end, although later rather than sooner.

Tepid Growth for Q1 GDP

By Thomas Cooley, Ben Griffy and Peter Rupert

Today’s announcement of a 1.1% increase for the final estimate for Q1 real GDP from the BEA produced a small upward revision from the second estimate (was 0.8%), but more than doubled the advance estimate (was 0.5%). While the upward revision was certainly welcome, the overall picture is still one of weak growth overall. gdprealchgm-2016-06-28

Consumption spending drove most of the increase in growth,  personal consumption expenditures grew +1.5% and the services component at +2.1%. Gross private domestic investment declined -1.8% and has declined for three consecutive quarters. Nonresidential structures and equipment fell substantially, -7.9% and -8.7%. Residential structures, on the other hand, grew at its highest rate in over two years, +15.6%.

The weak-ish growth and the Brexit have contributed to the overall global uncertainty concerning future growth–and future policy. The dollar-pound exchange rate fell to its lowest level in about 30 years, as of this writing on July 1, it is 1.33 dollars per pound. Not to mention England lost to Iceland 2-1 (which we term “Brexit II”)!


The real effects of Brexit will take some time to sort out. How the EU reacts remains to be seen. In the short run, however, uncertainty can have real effects. Investment is likely to decline in both the UK and EU given the uncertainty surrounding future policy, such as tariffs and labor mobility. But note that tariffs and immigration controls are policy choices. If free and open trade and open borders benefit the citizens of the two areas then the choices by government should reflect that. However, as Chancellor Angela Merkel remarked, “Whoever decides to leave that family cannot expect all obligations to be omitted while keeping its privileges.”

Within the US, Brexit has been influential in causing the Fed to taper its stated goals of two interest increases during the year. Given the uncertainty surrounding Brexit and the EU, as well as the upcoming presidential election, this seems prudent. As the economy has been displaying tepid progress over the past few months in the United States, we can only hope that Brexit is not the final push for a teetering US and global economy.

The May Jobs Report Stifles Optimism

By Thomas Cooley, Ben Griffy and Peter Rupert

In recent weeks there has been increasing optimism about the strengthening U.S. economy based on increases in consumption and improvements in the housing sector.  This was accompanied by increasing chatter about a possible June or mid-summer rate increase by the Fed. The latest jobs report throws cold water on that optimism. The Bureau of Labor Statistics announced that payroll employment increased only 38,000 in May, the smallest increase since June of 2011. Of the 38,000 increase 25,000 was in the private sector. In addition, there were downward revisions to the previous two months totalling 59,000; down 22,000 in March and 37,000 in April.





The service sector was the driver of the increase, up 61,000, and almost all of that in health care, up 55,400. Mining employment continued its decline, down 11,000 after falling 26,000 over the previous two months.

Average weekly hours has been stuck at 34.4 for the past three months and average hourly earnings showed almost no change over the month, $25.54 in April and $25.59 in May.


The household survey from the BLS shows a 458,000 decline in the labor force (employed plus unemployed), and the number of persons unemployed fell by 484,000, leading to an  unemployment rate decline from 4.98% to 4.69%. The employment to population ratio held steady at 59.7.



These tepid results may be a delayed reflection of the slow growth in the first quarter and it may be the Q2 will continue to look stronger.  It does suggest that the Fed may scale back its intentions to continue to raise interest rates above the zero lower bound. In addition, slowing wage growth implies that inflation may flag as well, further depressing the nominal interest rate. There will undoubtedly be calls for more direct fiscal stimulus in the form of infrastructure investment to counter the low rate of investment and job growth. But that is unlikely to be forthcoming in an election year and given the increasing debt/gdp of the U.S..

As the rest of the world has stagnated, the United States has been the largest source of growth over the past few years. With poor employment reports over the past few months, it is unclear whether the US economy is strong enough to continue to be the global driver of growth.


Labor market adds to weak outlook

Labor market adds to weak outlook

By Thomas Cooley, Ben Griffy and Peter Rupert

The Bureau of Labor Statistics provided some additional bad news with employment increasing only 160,000 for the month of April. The private sector gained 171,000 however, with government shedding 11,000. Moreover, previous estimates were also revised down,  March 208,000 from 215,000 and February from 245,000 to 233,000. Mining employment continued its decline, down 8,000. empchgm-2016-05-06

Average weekly hours were up from 34.4 to 34.5 and average hourly wages ticked up.

The household survey also provided evidence of weakness: the unemployment rate remained essentially unchanged at 4.99%, the labor force fell 362,000 and the participation rate fell by 0.2%.


The household survey and establishment survey moved in decidedly different directions, with employment from the household survey falling 316,000.


The Q1 Disappointments Continue

by Thomas Cooley, Ben Griffy and Peter Rupert

The BEA reported today that real GDP for the first quarter (advance estimate) grew at an annual rate of only 0.5%. This continues the pattern of deeply disappointing first quarter results.  This, however, is not just a seasonal anomaly. GDP growth has been slowing steadily since the strong second quarter of last year. These results were expected but they are worrisome in several respects. While personal consumption expenditures were fairly strong, growing at 1.9%, the previous three quarters grew at a more robust 3.0%. Non-residential fixed investment fell 5.9% from the previous quarter and equipment investment fell by a whopping 8.6% – these do not bode well for future growth.




Residential fixed investment increased by 14.8%, a strong performance compared to previous quarters.  The core PCE index increased at a 2.1% annual rate suggesting that inflation may be getting near its target level. Exports fell by 2.6% holding back growth.

The steady downward march these last three quarters is cause for concern. But for the past several years dismal first quarters have been followed by rebounds. Will that pattern continue?

FOMC statement, April 27

The most recent statement from the FOMC delivered a weaker outlook than their previous statement. In addition, they removed the “headwinds” from global and financial concerns. Still, much of Europe and Japan remain weak.



When the Fed decided to hold off on rate increases they were clearly concerned about weak domestic fundamentals and waiting to see if the economy is going to continue to stagnate.  For the time being we must all play the waiting game and look for signs of renewed vigor in the monthly numbers. But what if the subsequent numbers show continued slow growth?  It isn’t clear that the Fed has much more that they can do. They are likely not ready to go to negative interest rates as other central banks have done. That leaves fiscal policy.

What Would Donald or Hillary Do?

This of course will be the great guessing game and subsequent reveal of the next many months. But so far the only revelation is an antipathy to trade on both their parts, which if brought to the fore could seriously hamper economic growth for decades to come.  But, it is time to start looking for – demanding – clues to their economic savvy beyond the campaign bloviating.


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