By Paul Gomme and Peter Rupert
The BLS announced that total nonfarm payroll employment increased 315,000 in August. Note, however, that the previous two months numbers were revised down: June by 105,000 and July by 2,000.
The employment gains were widespread with only motor vehicle and parts showing a decline, down 1,900. The private service sector added 263,000 jobs with professional and business services (+68,000), health care and social assistance (+61,500), retail trade (+44,000) and leisure and hospitality (+31,000) leading the way. The heavily pandemic-damaged retail trade and leisure and hospitality sectors have been clawing their way back. Retail trade employment has nearly returned to its pre-pandemic level while leisure and hospitality still has a way to go as there are about 1.2 million (7%) fewer employees today than in February, 2020. As many have noted, however, retail trade employment started to decline before the onset of the pandemic.
Hours of work declined from 34.6 to 34.5 and the June workweek was also revised down from 34.6 to 34.5. Average hourly earnings rose from $32.26 to $32.36.
The household survey revealed a 786,000 increase in the labor force, perhaps a reflection of the record levels of job openings. Employment increased 442,000 and the number of unemployed increased 344,000. These changes led to an increase in the unemployment rate from 3.46% to 3.66%. Note to reporters: this is not necessarily bad! The fact that more people are flowing into the labor force (employed plus unemployed) could be attributed to a strengthening in the labor market, since the unemployment rate is calculated as the number of unemployed divided by the labor force. Looking at this in a different way, nearly 2 million people came from not in the labor force and entered the ranks of the unemployed. If instead, they remained out of the labor force, the unemployment rate would have fallen to 2.52%.
How people end up unemployed also provides useful insight to the state of the labor market. In recent months, there has been an uptick in the fraction of those unemployed because of either job loss, or leaving their jobs. At the same time, the fraction of the unemployed who are either new entrants to the labor force, or re-entrants has fallen.
Data from the Job Openings and Labor Turnover Survey (JOLTS) indicates that the labor market is `tight’: there are many vacancies relative to the number unemployed. In July, this ratio stood at 1.98 meaning that there were nearly two vacancies posted for each unemployed person.
Initial and continued claims for unemployment were released this past week, showing a third straight weekly decline in initial claims but a rise in continued claims.
There is continued discussion in the press of the possibility that the US has slid into recession. Real GDP growth for the second quarter was revised up, from -0.9% to -0.6%. We can use the GDP identity to decompose the growth rate of GDP into the contributions of its major components. By way of example, investment fell 13.2% in the second quarter. Since the share of output going to investment is roughly 20%, investment contributed -2.6% (-13.2 multiplied by 0.2) to the -0.6% growth in GDP. Negative contributions were also made by imports (-0.6%) and government spending (-0.3%). On the plus side, consumption contributed 1.0% while exports contributed 2.1%. (Owing to annualization of quarterly growth rates, and that the components do not quite add up to GDP, the contributions given in this paragraph do not add up to the -0.6% growth rate for GDP.)
The productivity and costs report released September 1 put a bit of a damper on the week’s announcements. Output per hour in the nonfarm business sector declined 4.1% in the second quarter on a seasonally adjusted annual basis. This change came from a 1.4% decline in output and a 2.7% increase in hours. Moreover, the year over year decline of 2.4% was the largest decline since the data began in 1948.
Nevertheless, the Chauvet-Piger calculated recession probability for July is a very modest 0.2%.
The recession probability is obtained from a Markov switching estimation procedure using data on non-farm employment, industrial production, real personal income excluding government transfers, and real manufacturing and trade industries sales. Typically, during a recession, all four series decline. While manufacturing and trade industries sales show negative growth in recent months (perhaps a counterpart to negative GDP growth), the other three series have grown at positive rates. As emphasized by the NBER Business Cycle Dating Committee, a recession is a broadly-based phenomenon; negative output growth is but one component. At present, the overall outlook is still positive and the answer to the title question is: yes.
