August employment stalls

By Thomas Cooley and Peter Rupert

The Bureau of Labor Statistics reports employment increased 156,000 in August along with 41,000 in downward revisions over the past two months. The overall picture, highlighted by the continued use of “little changed” by the BLS:

“and the unemployment rate was little changed at 4.4 percent”,

“Among the major worker groups, the unemployment rates for adult men (4.1 percent), adult women (4.0 percent), teenagers (13.6 percent), Whites (3.9 percent), Blacks (7.7 percent), Asians (4.0 percent), and Hispanics (5.2 percent) showed little or no change in August. (See tables A-1, A-2, and A-3.)”

“The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged in August at 1.7 million and accounted for 24.7 percent of the unemployed. (See table A-12.)”

“The labor force participation rate, at 62.9 percent, was unchanged in August and has shown little movement on net over the past year. The employment-population ratio, at 60.1 percent, was little changed over the month and thus far this year. (See
table A-1.)”

Declines in employment were seen in information services and government. Average hours of work fell slightly from 35.4 to 34.4.



The employment to population ratio has been inching up since 2014 while he labor force participation rate has hovered around 62.9.







The matching of workers to vacancies, as indicated by the Beveridge Curve, after moving counter-clockwise over the cycle shows a slightly elevated vacancy rate as compared to unemployment.


The weakness from this August report likely gives some pause for the policy moving forward. Nevertheless, it is still a strong labor market with low unemployment rates and  healthy vacancies. The same puzzles that presented themselves in prior months persist – low participation rates and low wage growth. Healthy GDP growth has not translated into gains for most workers.

Q2 GDP: 3.0% in 2nd estimate

By Thomas Cooley and Peter Rupert

The BEA released the 2nd estimate for Q2 real GDP and hiked it from 2.6% in the “advance” estimate to 3.0%. Real GDP increased 1.2% in Q1. The 3.0% increase is the largest since Q1 of 2015. The boost from the advance to the 2nd estimate came largely from PCE (up 3.3%) and non-residential fixed investment (up 6.9%) being larger than previously estimated. Residential fixed investment, however, fell 6.5%.




The strong growth in consumption occurred despite continued slow growth in wages and incomes. The rise in equity prices and the strong labor market have increased optimism that fueled more consumption. In fact the Conference Board reported an increase in consumer confidence that is hovering around a 16 year high. Investment growth is driven by a period of strong corporate profits. The US dollar continues to decline against a broad set of currencies, down about 7% since the beginning of the year and the Euro has also gained strength this year, up about 12%, despite increases in interest rates. This may stimulate future export growth which would keep the economy going strong.


Hurricane Harvey creates a lot of uncertainty for the future. On the one hand it foretells a big short term hit to local GDP from lost economic activity and the hit to the oil and gas sector. This will be balanced against future stimulus from the massive recovery effort. Evidence from prior national disasters – specifically Hurricane Sandy disrupted New York and Hurricane Katrina that devastated New Orleans – showed big short term impacts on the local economies but not a noticeable impact on aggregate GDP.  It seems that it shouldn’t affect forecasts of Q3 and Q4 growth very much.


July Employment Stays Warm

By Thomas Cooley and Peter Rupert

The establishment survey from the BLS showed payroll employment up 209,000 in July. The revised increase, up 9,000, in payroll employment in June was 231,000. Private sector employment was almost solely responsible for the increase as government employment was up only 4,000.  The labor market is continuing to add jobs at a healthy rate in spite of the length of the expansion.



As in previous months most of the job growth is occurring in the service sector with some minor added employment in mining and construction.

Average hours of work remained at 34.5 for the second month in a row.


Average hourly earnings increased 0.3% (9 cents) to $26.36 and have increased 2.5% year over year while the CPI has increased 1.6% year over year, leading to an increase in real hourly earnings. This is a good sign, but no evidence that the labor market is going to be putting upward pressure on inflation anytime soon.


The Beveridge Curve continues to show low unemployment and a high vacancy rate, sometimes the recipe for increased wage pressure. But, in this economy, the employment to population ratio and labor force participation are still notably below their recent peaks…meaning a lot of possible workers are on the sidelines. There are two accounts for why this is so. In one, people are staying on the sidelines because of the increased value of leisure. The other, that we have emphasized, is that there is a mismatch of skills slowing down the matching in the labor market.

The employment to population ratio showed a modest up-tick as did labor force participation, although the labor force participation remains at a relatively low level. Moreover, trends in labor force participation are now very flat for many different types of workers and have been over the last several years. The most remarkable is that of teens, now at the lowest level since the data was recorded back in 1947.





Q2 GDP Shows Solid Growth

By Thomas Cooley and Peter Rupert

The advance estimate for Q2 shows a 2.6% annualized growth rate for real GDP. The largest contributor to that increase was consumption, real PCE increased 2.8% on an annualized basis. gdprealchgm1-2017-07-28


Several other sectors showed large increases, equipment up 8.2%, the largest increase since Q3 of 2015. Durable goods up 6.3%. Nonresidential fixed investment rose 5.2% following a 7.2% increase in Q1, the two highest growth rates since 2014 Q3. Residential fixed investment, however, declined 6.8%.



July is typically the month the BEA does annual updates. The timespan of the revisions is the first quarter of 2014 through the first quarter of 2017. Q1 of 2017 was revised down to 1.2% from 1.4%. The PCE price index was also revised down in Q1, from 2.4% to 2.2%. Overall, from 2013 to 2016 average annual growth was revised up slightly, to 2.3% from 2.2%.

Q2 was expected to come in stronger than Q1 and it was expected that consumers would drag the numbers up. Still, the picture is of modest, unspectacular growth.  This is now a very mature expansion and it could turn down at any time.  What has been missing throughout is the stimulus that would come from increased investment.  A big infrastructure program could turn that around but it does not seem to be likely in the near future. The current recovery, compared to earlier recoveries, has been remarkably weak for investment. It took about six years to get back to the pre-recession investment levels. inv-cyc-2017-07-29investment_shares-2017-07-29

Weak(ish) May Jobs Report

By Thomas Cooley and Peter Rupert

The May jobs report was certainly on the weaker side. The BLS data show an increase in payroll employment of 138,000 with downward revisions totaling 66,000 (down 29,000 in March and 37,000 in April). The service sector provided 131,000 additional jobs. The largest contributors in the service sector were Education and Health services, up 47,000, and Professional and Business Services, up 38,000.


The volatile Mining sector continues to expand, up 6,000 and the 7th straight month adding employees. Manufacturing and Construction employment are still nearly 10% below the level back in January, 2008.


Average weekly hours remained at 34.4. Average hourly earnings ticked up slightly.


The household survey showed a large decrease in the labor force, down 429,000, leading to a decline in the participation rate, from 62.9 to 62.7.  The number of employed persons was down 233,000 and the number of persons unemployed was down 195,000. The employment to population ratio fell from 60.2 to 60.0. The unemployment rate fell slightly from 0.044 to 0.0429.



The  next two charts indicate there is something missing in the labor market picture.  Vacancies are at record levels and the unemployment rate is at a decade low and yet average hourly earnings have barely budged.  This, combined with low and falling participation rates, suggests that there is indeed something missing.  That something is human capital.  Jobs that can be routinized and require low levels of human capital are being replaced by technology. The education system is not producing the kinds of workers that are  needed in many parts of the economy.  The loss of jobs to robotics and AI is more likely to speed up than slow down and changing our human capital is a slow process.

Although there has been a lot of chatter about the Fed downplaying the previous GDP report and feeling confident the economy about the continued strength of the economy, there are certainly some signs the economy has deep seated weakness. Maybe not enough to dissuade the Fed from a June increase, but certainly to give some pause in their commentary.