Author: peter.c.rupert

By Thomas Cooley and Peter Rupert

The establishment survey from the BLS announced a 312,000 increase in payroll employment for December. According to the NY Times, Wall Street analysts expected an increase of 180,000…off by 132,000! In addition there were upward revisions in October (+37,000) and November (+21,000); totaling +58,000.

The private sector posted gains of 301,000 and government jobs increased 11,000. Service producing jobs increased 227,000 with 57,900 added in health care. Gains were seen in all major sectors but one, information declined slightly, down 1,000. In fact the diffusion index (the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment) skyrocketed from 61.0 to 70.0.

Average weekly hours rose slightly from 34.4 to 34.5. Average (nominal) hourly earnings increased 0.4% from $27.37 to $27.48 and have increased 3.2% year over year. With the CPI increasing by about 2.2% over the year implies real earnings gains. The growth in earnings over the past few months is the highest since the middle of 2009.

The household survey showed an increase in the population of 180,000 and increase in the labor force of 419,000, leading to an increase in the labor force participation from 62.9 to 63.1. The number of unemployed persons increased by 276,000 leading to an increase in the unemployment rate, from 3.70% to 3.86%. An obvious issue with the unemployment rate is that it can rise and fall for various reasons and one has to know why it went up or down. For example, suppose people see a strong, growing labor market and leave their job to search for better opportunities. Ceteris paribus, the unemployment rate increases…but this seems like a good thing for individuals. Indeed, the number of unemployed persons rose by 276,000 in December. Roughly half of that number was due to job leavers. Another 89,000 of the additional unemployed came from reentrants and new entrants to the workforce.

The Atlanta Fed Jobs Calculator shows that given the current labor force participation rate of 63.1% to maintain the 3.86% unemployment rate the average monthly employment growth would have to be about 111,000. From December 2017 to December 2018 the labor market created about 2.6 million more jobs in the total nonfarm sector for an average monthly increase around 220,000.

Moreover, there are more jobs looking for workers than unemployed persons. The JOLTS data show more vacancies than unemployed persons in total as well as across the census regions.

The Big Picture

Financial tumult notwithstanding, the labor market continues its decade long overall growth. There is little in the labor market data that would deter the FED from its stated path.

By Thomas Cooley and Peter Rupert

The establishment survey from the BLS employment report revealed a  155,000 increase in the number of new employees, with small downward revisions over the previous two months. This was slightly below analysts expectations but was also consistent with other signs in the labor market that point to employers having trouble finding good matches in spite of record high vacancies.  There was an increase of 161,000 in the private sector while government employment fell 6,000. Private service producing added 132,000, of which 40,100 came from health care and social assistance jobs. The somewhat disappointing parenthetical insert reflects that many were forecasting gains near 190,000. However, the economy often is hit with shocks, fires in California, cold/snowy weather in the east and midwest, that can have effects on monthly numbers. 

Average weekly hours slipped from 34.5 to 34.4 while average hourly earnings increased from $27.29 to $27.35. Year over year average hourly earnings increased 3.1% leading to real wage gains as earnings have outpaced inflation. This is a very modest increase but it is consistent with a tight labor market in which wages are being bid up.

Labor force participation rates remained steady at their low levels and the employment population ratio also held steady. The current recovery has also delivered the lowest unemployment rate for African Americans (5.9%) and Asians (2.7%) since the BLS began tracking the series, 1972 and 2000 respectively. The unemployment rate for women (3.8%) is the lowest since the 1950’s. 

On Thursday the BLS announced a 2.3% productivity increase in November. Output rose 4.1% and hours worked rose 1.8%. Over the year productivity increased 1.3%.

Although this is not a strong report it is consistent with a labor market that is continuing to generate jobs at a healthy rate in spite of uncertainties about trade and increased financial market volatility.  It is hard to see from this report why the Fed would back off its planned December rate hike although future hikes seem more uncertain in light of the uncertainties.

By Thomas Cooley and Peter Rupert

The problem with being an economist when at a party or other social event is that certain questions are bound to be asked: “When will these good times come to an end?” “Is a recession around the corner?” The answers: No one knows. Yes, the business cycle is a recurrent phenomenon, we just don’t know when it will happen. Obviously those answers do not give economists a very good name. Of course there are economists who have “predicted” a down turn…and yes, someone wins a lottery when the chances of doing so are millions to one.

The strong employment report from the BLS keeps the debate alive. Nonfarm payroll employment from the establishment survey increased 250,000 (246,00 in the private sector). August employment was revised up 69,000 and September down 16,000. All of the major categories showed positive growth.

Average weekly hours crept up to 34.5 from 34.4 and has been bouncing between the two for some time.

Average earnings rose slightly. There has been substantial discussion over the issue of little or no growth in wages over the past many years. See, for example, NY Times, October 22, 2018, “Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t.”  The main puzzle many suggest is that the labor market is very strong in almost all dimensions except wage growth.

First, what do people mean by the labor market being strong? The labor market is creating more and more job opportunities as the BLS announced recently from the JOLTS: The number of job openings currently stands at 7.1 million, the highest number since the series began in December of 2000.

Of course the population and number of firms are also growing, so it is helpful to look at the job vacancy rate, that is, the number of vacancies at the establishment divided by employment at the establishment. The chart below shows that that also is now the highest since the series began, about 4.6 vacancies per 100 employees.

The number of unemployed persons has also fallen substantially, from over 15 million in 2009 to about 6 million today. Economists define a “tight” labor market as one in which job vacancies are high relative to those unemployed, i.e., vacancies divided by unemployment. Market tightness is also the highest it has been since 2000.

The impressive labor market performance can be seen across the main census regions, in each region there are more vacancies than unemployed searchers, that is, labor market tightness is greater than 1. This is the first time all of the regions have more vacancies than unemployed searchers.

The unemployment rate remained constant as the BLS reported from the household survey. The unemployment rate is now 3.73%, which is actually slightly higher than than the 3.68% in September. Note, however, that the number of persons unemployed actually increased by 111,000; but, so did the participation rate, from 62.7 to 62.9. Of course, as is well known, the participation rate is well below where it was 20 or so years ago, as is the employment to population ratio.

One concern about the labor force participation rate is what would happen if it increases to say 65.3%, somewhere around its average since 1980. According to the Atlanta Fed’s Job Calculator, the labor market would have to create about 630,000 jobs per month to keep the unemployment rate where it is today! Said differently, it the LFPR increases to 65.3% and we create about 200,000 jobs per month, the unemployment rate would get close to 7%.

On the issue of the slow wage growth, here is a picture of average hourly earnings for production and nonsupervisory workers:

Note that the above graph is in nominal terms. It would be foolish to say workers were much better off in the 1970’s because their wages were rising around 8% per year because inflation was increasing more than wages.

The next graph takes year over year wage growth and subtracts off year over year growth in inflation, as measured either by the CPI or PCE.

So, what do we make this graph? Until the mid-90’s real wage growth was often negative. The 90’s were good times and since then with such low inflation, workers have actually done pretty well.

The Big(ger) Picture

Currently there are small real wage gains for production and nonsupervisory workers. That is, with year over year nominal wage growth of roughly 3.2% in October…as long as inflation rises less than 3.2% workers are making real wage gains. Obviously, if inflation rises faster than wages, as in the 70’s and late 80’s, real wages will be falling.

Now, to Fed Chairman Powell’s claim that, “We’re a long way from neutral at this point, probably.” And then President Trump, blaming the Fed for the market selloff and describing the central bank as “crazy” and “out of control.” A long way from neutral, in this context, likely means the Fed will be raising the fed funds rate, but to be neutral, that is, keep inflation under control so as to not eat away the real wage gains of workers.

 

By Thomas Cooley and Peter Rupert

September employment increased by 134,000 and there were significant upward revisions to July and August (18,000 in July and 69,000 in August) according to the establishment data from the BLS.

The retail trade and leisure and hospitality sectors experienced declines, -20,000 and -17,000, respectively, but those were the only two with declines to speak of. While retail trade employment has largely rebounded since the depths of the Great Recession, growth has stalled over the past year or so while leisure and hospitality has been climbing at a much faster pace. In 1990 retail trade employment was about 45% higher than leisure and hospitality but has since been surpassed by leisure and hospitality.

Average weekly hours remained at 34.5 for the third consecutive month. Average hourly earnings moved up slightly from $27.16 to $27.74.

The number of unemployed persons fell by 270,000, the labor force increased 150,000, leading to a fall in the unemployment rate from 3.85% to 3.68%. The labor force participation rate remains low at 62.7, for reasons we have speculated about before and the employment population ratio increased slightly from 60.3 to 60.4.

While many had predicted a weak employment outlook due to Florence, the overall outcome was relatively strong. The Fed will continue its planned course of action to raise the interest rate one more time this year.

By Thomas Cooley and Peter Rupert

The BLS announced payroll employment increased 201,000 in August with no real surprises…except 50,000 in downward revisions (-40 for June and -10 for July) that temper the strong report. Total private employment rose 204,000 while the government sector sank by 3,000. The service sector added 178,000 jobs, with 40,700 coming from health care and social assistance.

Average weekly hours remained at 34.5 while average hourly earnings increased from $27.06 in July to $27.16 in August and have increased 2.9% year-over-year. However, the CPI increased nearly 2.9% as well leading to almost no gain in real average hourly earnings over the year. The more comprehensive employment cost index also showed steady growth.

The household survey reveals almost no change in the unemployment rate: from 3.87% in July to 3.85% in August. However, the number employed fell by -423,000, the number unemployed fell by -46,000, leading to a decline in the labor force of -469,000. With population increasing 223,000 means the labor force participation rate fell from 62.9 to 62.7 and the employment to population ratio fell from 60.5 to 60.3.

The labor market remains very tight in the sense that there are now more vacancies than unemployed persons in two regions, the midwest and the south, and about the same number of vacancies as unemployed in the northeast and west.

The Big Picture

While the 201,000 increase was in line with many predictions, the 50,000 downward revision should temper optimism. The decline in participation and the employment to population ratio also added a slight negative spin. It is still a robust labor market with many job openings available.  Importantly, there is nothing in this report that would temper the Fed’s signaled intention to raise interest rates at the next meeting.

 

By Thomas Cooley and Peter Rupert

Today’s GDP release saw a 0.1 percentage point increase in real gdp to 4.2% for Q2. The change was driven by upward revisions to fixed investment (from 5.4% to 6.2%), inventory investment and government spending (from 2.1% to 2.3%). Downward revisions were seen in PCE (from 4.0% to 3.8%), residential fixed investment (-1.1% to -1.6%), and exports. Imports were also revised down.

 

The Bigger Picture

Today’s revisions did little to change the course of future policy. Year over year GDP growth has seen a marked trend up since 2016Q2. Whether this robust path will continue is subject to some doubt.  A big contributor to the upward tick was net exports. While it is too early to tell it seems likely that a lot of this will be reversed in the third and fourth quarters given the current volatility of trade policy.

By Thomas Cooley and Peter Rupert

Friday the BEA announced that the advance estimate for Q2 has real GDP increasing 4.1% at an annual rate. This is the largest increase since Q3 of 2014. Personal consumption expenditures (PCE) grew 4.0% after a weak Q1 at 0.52%. Moreover, PCE was the largest contributor to the growth at 2.69 percentage points. Note that the annual GDP revisions included a rebasing of the “real” GDP figures to a reference year of 2012 instead of 2009.

Private fixed investment was up 5.4% after increasing 8.0% in Q1. Real non-residential investment in structures grew 13.3% and residential fell, -1.1%. Since 1999 the changes in non-residential investment are uncorrelated with residential investment.

Exports were up 9.3% and imports 0.5% leading to a change in net exports of $52.4 bln.

The quarterly PCE chain-type price index increased 1.8% at an annual rate and ex-food and energy at 2.0%.

The BEA released personal income this morning with a 0.3% increase over the month in real terms after a weak April (0.1%) and May (0.2%).

The Bigger Picture

Although there were some downward revisions to the last three quarters of 2017 the strength of this report, in both output and prices, along with the strong June employment report, should not change the course of expected Fed rate hikes in their September and December deliberations. However, will we see some momentum to raise rates this week given that many expect Q3 growth to come in over 3%? Many observers think the Fed is now a bit behind the curve with price increases beginning to have some bite throughout the economy.

By Thomas Cooley and Peter Rupert

The BLS announced that total nonfarm employment increased by 213,000 in June with 202,000 of that from the private sector. Early forecasts were in the 195k range. In addition, April employment was revised up 16,000 and May 21,000. The only large decline occurred in retail trade, shedding 21,600 jobs. Since January, 2008, employment is about 9% higher and services has increased about 12%. Construction employment losses after 2008 were large and is now nearly back to the 2008 level. 

Average hours of work remained at 34.5 and average hourly earnings increased from $26.93 in May to $26.98 in June and up 2.74% since June of last year. In real terms, using the CPI, wages have not risen over the previous year as the CPI also increased about 2.7% since June of 2017.

The household survey showed that the employment to population ratio remained at 60.4, the labor force participation rate increased from 62.7 to 62.9, and the unemployment rate rose slightly to 4.05%.

The BLS also announced the newest Job Opening and Labor Turnover Survey, showing the level of vacancies fell slightly, from a revised 6.8 million to 6.6 million. Moreover, in nearly all regions the number of vacancies is about the same as the number of unemployed persons…although in the Midwest there are 326,000 more vacancies than unemployed persons.

 

By Thomas Cooley and Peter Rupert

The BEA’s 2nd estimate of Q1 GDP shaved off 0.1 percentage points to a now revised growth rate of 2.2% at a seasonally adjusted annualized rate.  Personal consumption expenditures were quite weak, revised down from 1.1% to 1.0% , the lowest reading since 2013 Q2. The change also resulted from downward revisions to private inventory investment, residential fixed investment (revised from 0.0% to -2.0%), and exports, but partly offset by an upward revision to non-residential fixed investment (from 6.1% to 9.2%).

May Employment Report

Today’s employment report from the BLS revealed continued strength in the labor market with an increase of 223,000 jobs, of which 218,000  were in the private sector. The only significant declines were found in motor vehicles and parts, down 4,400 and temporary help services, down 7,800.

Average weekly hours remained at 34.5 for the fourth month in a row. Average hourly pay increased from $26.84 to $26.92.

The household survey also showed continued strength with the number of unemployed persons falling by 281,000 leading to a further decline in the unemployment rate from 3.93% to 3.75%…the lowest since 1969!

The week ended on a high note with both the GDP and employment reports showing continued strength. Have a nice weekend!