Author: peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced that payroll employment increased 263,000 in September with an additional 11,000 revision to July’s numbers. Employment gains were widespread with only retail (-1,100), transportation and warehousing (-7,900) and government sectors declining (-25,000). The service sector added 244,000 jobs, of which health care (75,000) and leisure and hospitality (83,000) the prime movers.

Employment in retail has traditionally been higher than that in the leisure and hospitality sector. After the Great Recession leisure and hospitality employment grew much faster than retail and overtook retail employment in 2018. The pandemic had a devastating effect on employment in both sectors with leisure and hospitality taking a much larger hit. Recovery was pretty swift and the two sectors are now equal in terms of employment. It remains to be seen if leisure and hospitality employment will again outpace retail employment.

Average hours of work remained at 34.5 and with the employment increase lead to a 0.17% increase in total hours worked. Average hourly earnings increased from $32.36 to $32.46. Year over year CPI inflation is hovering around 8% and average hourly earnings over the year have risen 5%, leading to a 3% decline in real earnings as shown in Figure 6.

Figure 7 takes a longer view of the average real wage in the US. In this figure, we have normalized average hourly earnings, the CPI, and PCE deflator, setting each equal to 100 in March 2006 — the first available date for average hourly earnings. We have used a logarithmic scale for the vertical (y) axis so that a straight line represents a constant growth rate. The average real wage is given by the difference between average hourly earnings and a price index, represented by the gap between the average hourly earnings line, and that of a price index. In fact, since we have used a logarithmic scale, a constant gap implies a constant percentage gain in the average real wage, measured since March 2006. For the most part, there is a positive gap between average hourly earnings and either the CPI or PCE deflator. This means that, relative to March 2006, the average real wage has, for the most part, increased. The exception to this pattern of real wage gains is in the midst of the Great Recession (2007-09) when the CPI line lies above that of average hourly earnings which means that real wages declined relative to March 2003.

Figure 8 redoes the analysis underlying Figure 7, but focusing on the COVID-19 pandemic and its aftermath. To this end, we normalize average hourly earnings and the price indices to equal 100 in February 2020. As with Figure 7, the average real wage is the difference between average hourly earnings and either the CPI or PCE deflator. Once more, real wage gains are visually represented by the gap between the average hourly earnings line and that of a price index. Measured again by the CPI, the average wage was higher than its pre-pandemic level through 2020 and 2021. However, starting in early 2022, the CPI line rises above that of average hourly earnings which means that the average real wage has fallen, again relative to February 2020. An advantage of Figure 8 over a plot of the real wage is that it gives some perspective on the source of real wage movements. In particular, since mid-2020, nominal wages have grown at roughly a constant rate (the average hourly earnings line is almost a straight line). It’s the increase in the CPI, starting in 2021, that has eventually led to a decline in real wages. However, using the Fed’s preferred measure of the price level, the PCE deflator, shows that the average real wage has increased relative to February 2020, although these gains have eroded somewhat in 2022.

The household survey showed a 57,000 decline in the labor force. The number of unemployed persons fell 261,000, the number employed increased 204,000, leading to a decline in the unemployment rate from 3.66% to 3.49%. Note that the labor force participation rate remains lower than it was pre-pandemic.

Initial and continued unemployment claims were released last week and there was a hefty uptick in initial claims, climbing to 219,000 and a moderate increase in continued claims, rising to 1,361,000.

Although there has been a bit of a slowdown in some parts of the economy, the labor market continues to look pretty strong. Job vacancies have declined somewhat in recent months but there are still about 2 vacancies for each unemployed person.

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.

By Paul Gomme and Peter Rupert

Recession fears have been ignited and businesses, consumers and governments have begun to put up their anti-recession shields. But what do the data say? First, due to the pandemic and mandatory shutdowns, it is very difficult to compare the changes in the data today to that of one or two years ago when trying to assess overall economic activity. Second, in many respects, a lot of the current data do not appear to be in recession territory.

So what are the data telling us about a recession? Jeremy Piger uses a dynamic-factor Markov-switching (DFMS) model, originally developed by Marcelle Chauvet, to calculate the probability that the US economy is in a “recession” using four monthly variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. For the most part, periods when the NBER has determined that the US economy is in recession coincide with periods that the model assigns a high probability to being in a recession. As of August 1, 2022, the model assigns a probability of 1.72% of being in a recession.

Several bellwether measures have been released over the past week or so. The first was real GDP, released Thursday, July 28. The report showed a second consecutive decline. While two consecutive quarters of negative GDP growth are often taken to mean that the economy is in recession, it’s the NBER’s Business Cycle Dating Committee that officially make this determination. One problem is that this committee often waits several months before making its determinations. As a result, the committee offers no help in assessing the current state of affairs.

While overall real GDP fell for the second straight quarter, the components showed mixed signals. Personal consumption expenditures, the largest component (about 70% of GDP), increased 1% and has not fallen since April of 2020. Real investment declined by 13% due both to a large decline in structures, both nonresidential (-11.7%) and residential (-14.0%). Government expenditures and investment contracted for the third straight quarter.

The second key piece of information, payroll employment, was released Friday morning and showed a very large increase in the number of jobs created in the U.S. economy, rising 528,000. This was much higher than many experts expected. In the Wall Street Journal survey, economists predicted an increase of about 258,000. Service-producing jobs grew 402,000.

Average hours of work remained at 34.6 for the third consecutive month. Average hourly earnings rose from $32.12 in June to $32.27. While average hourly earnings growth has been quite strong, real earnings have been eaten away by the larger increase in the CPI.

The Job Openings and Labor Turnover survey reported a slight decrease in job openings while the number of people unemployed fell 242,000. There are still nearly two job openings for every active job seeker. Moreover, the unemployment rate is pretty much as low as it has ever been since the 1950’s.

Initial claims for unemployment insurance rose slightly and have been trending up over the past month or so, and are now somewhat higher than pre-pandemic levels that were averaging closer to 220,000 per week.

So, where does all this leave us? It remains unclear whether the NBER will tell us in several months that we are in the throes of a recession. Yes, GDP has fallen in two consecutive quarters, however, the labor market continues to be quite strong.

By Peter Rupert

The BLS establishment data released this morning showed a payroll employment gain of 210,000. This from the WSJ before the announcement, “Economists surveyed by The Wall Street Journal estimate that employers added 573,000 jobs in November, on par with October, and unemployment ticked down to 4.5% from 4.6%.” That is a big miss but, as has been remarked on several times in this blog, this forecasting thing is not ez. There were, however, upward revisions for September (up 67,000) and October (up 15,000) to take a little sting off the November headline number. While the private sector increased 235,000 the government sector declined 25,000. Maybe Omicron fears drove the decline in retail employment of 20,400 and the small gain in leisure and hospitality of 23,000. As many people have noticed, there are no cars for sale it seems. Employment in motor vehicles and parts fell 10,100.

Average hours of work inched up from 34.7 to 34.8, giving a little more oomph to today’s report. One way to think about production of goods and services is to measure the inputs into producing those goods and services. The “headline” employment number, seen as disappointing by many,” is only one measure of the productive capacity…and a partial one at that. To get a more complete measure, multiply the number of those working in the private sector by their average weekly hours of private workers times the number of weeks in a month. And no, there are not 4 weeks in a month. For months with 31 days there are 4.4286 weeks; for months with 30 days there are 4.2857 weeks; for 28 days it is 4.0 weeks and for 29 days it is 4.1429 weeks. Going from September to October total hours of worked climbed about 3.5% and from October to November total hours fell about 3%. Average hourly earnings climbed 8 cents to $31.03; however, year over year inflation has outpaced the growth in average hourly earnings.

The household survey showed an increase in the civilian labor force of 594,000 and an increase in those employed by 1,136,000. With population increasing 121,000 this lead to a big increase in the employment to population ratio, from 58.8 to 59.2. The number of people unemployed fell 542,000 and the unemployment rate dipped to 4.2% from 4.6%. It is remarkable to see how quickly the number of unemployed and the unemployment rate have fallen compared to other economic recoveries.

Initial claims popped up 28,000 to 222,000 in the week of November 27 after the claims hit the lowest in 52 years last week at 194,000. Continued claims fell

Overall, the labor market continues to strengthen even given the shortfall in employment compared to what was expected. Of course there is still plenty of mismatch it appears as there are still more job openings that unemployed persons. One place this is showing up is in the number of self employed persons. In April of 2020, just as the pandemic was starting, there were 8,221,000 self employed. That number is now 9,997,000.

By Peter Rupert

The BLS announced that employment in October gained 531,000 jobs with the private sector increasing 604,000 and the government sector shedding 73,000. Moreover, September’s employment was revised up 118,000 and August up 117,000. Recall there was much disappointment when the September increase was “only” 194,000 and did not live up to expectations. The first chart below shows what the data looked like for the September report and the second chart is the October data. This gives a much stronger labor market rebound in just one month.

The bulk of the increase came from a 496,000 increase in the service sector, led by leisure and hospitality, up 164,000.

Hours of worked declined from 34.8 to 34.7 taking some of the impact off the employment gains. Hourly earnings rose from $30.85 to $30.96 and are up 4.9% year over year.

The labor force increased 104,000 with no change in the labor force participation rate of 61.6. The employment to population rate rose slightly from 58.7 to 58.8. The number of unemployed persons fell by 255,000. The unemployment rate fell from 4.8% to 4.6%. Long term unemployment has also been falling. The composition of the unemployed is also starting to look more familiar.

At the last FOMC meeting the paring of QE along with the notion that inflation was more of a concern were of note. The increase in average hourly earnings is far above its average over the past decade or so, as is inflation. If average hourly earnings falls back to its longer run average while inflation remains elevated, real earnings will begin to fall…that is something not seen since in the last 8 years, when real earnings were rising.

By Peter Rupert

GDP and Components

The BEA announced that Q3 real GDP increased 2.02%, falling below many forecasts that were in the 3.0-3.5% range. The decline most likely reflected the Delta variant, supply chain issues and new inflation fears. Have you tried to buy a car lately? Weakness in personal consumption expenditures (PCE) played a big role in the weakness, increasing only 1.58%. Durable good consumption has been exceptionally wacky, falling 26.2%. The volatility in durable goods consumption has increased substantially throughout the pandemic, here are the numbers: Q3, 2020= 89.0%; Q4, 2020=1.1%; Q1, 2021=50.0%; Q2, 2021=11.6% and now -26.2%.

Although real investment saw a spike up by 11.7%, both residential and non-residential structures took a big hit, down 7.7% and 7.3%, respectively.

Personal Income and Outlays

The BEA delivered some additional bad news, personal income declined 1.04% in September following a 0.2% rise in August. Real disposable personal income sank by 1.6% and the personal savings rate fell sharply to 7.5%. Further complicating the forecast, the PCE price index climbed to 4.38% and will likely be a major topic in the upcoming FOMC meeting in the coming week.

Unemployment Claims

On the better news front, initial unemployment claims dropped again, now at 281,000, the lowest since the pandemic started. The same for continued claims, falling to 2,243,000.

Although many stats show the labor market looking a bit more “normal” there appears to be ongoing difficulties in finding suitable workers. This mismatch is evident as there are now about 2 million more people unemployed than the number of job vacancies. This will also be a discussion by the FOMC in relation to supply chain issues. All of this makes for a pretty spooky Halloween. Stay safe.

By Peter Rupert

This is a very difficult post to write. Tom Cooley, my dear friend, mentor, collaborator and drinking buddy passed away on Saturday, October 9. Tom had been ill for several months and was at home with his loving family during his last days. Much will be written about Tom’s contributions to the economics profession and to the world at large. He had boundless energy and deep insights. We started this blog site many years ago in the hopes of bringing perspective to the data that appear on a regular basis. I have not included his name as an author today even though we had talked about these issues weeks ago. He was always the inspiration for this blog and an inspiration for many generations of students and colleagues. Tom was a master at making sense of economic models and data. He was the filter for this blog and it was far too often sobering when he would say, “You can’t say that, makes no sense.” And would then put you on the right track. I will miss him deeply.

Establishment Data

The BLS announced that payroll employment was up 194,000, a number that was met with disappointment it appears: NYT and CNBC. Evidently, experts had (predicted, hoped, thought) that employment would increase by about 500,000, see the CNBC source above. This report, however, was much stronger that the “headline” number everyone gloms onto. The employment report is supposed to give a glimpse of the health of the labor market that, in turn, tells us about how the overall economy is doing. More employment -> more output -> more income. A small increase then means that the economy is not producing much more stuff. Unfortunately, the headline number is really not enough to deliver such a message. Indeed, the September report was actually quite good.

There are several reasons as to why the report was much better than most analysts thought. First, the BLS revises the preliminary data over the ensuing two months after the preliminary number is reported. In this case there was an upward revision of 169,000 (131,000 in August and 38,000 in July). So that’s a bit better.

Second, the private sector employed 317,000 more while the government sector declined 123,000. Depending on the weight you put on the private sector as a driver of the economy this number makes the report a bit better as well (I am not sure how that sentence would have come through the Tom filter).

The labor market has seen a massive increase in quits. For example, quits in the leisure and hospitality sector have shot up to levels never seen before, nearly 1 million in August, certainly adding to the labor shortage people have been talking about.

Inflation has begun to put a damper on the recovery from the pandemic and has the Fed starting to fret a bit. CPI inflation increased 5.4% YOY and PCE inflation up 4.3%. Given that inflation growth is above that of average hourly earnings growth, real purchasing power has declined. However, there are other measures of inflation. After all what is trying to be measured is some average price change across the economy. The Fed has chosen the PCE as their go to measure, for example. The “core” inflation rate removes food and energy since those are quite volatile month to month. The Dallas Fed produces a “PCE trimmed mean inflation rate” that trims off high and low outliers, giving a 2% inflation rate. The Cleveland Fed produces a “median PCE” that shows a 2.4% increase.

Household Survey

The labor force declined 183,000 and the number of unemployed fell by 710,00, leading to a large decline in the unemployment rate from 5.19% to 4.76%. Note, however, that there are still almost 7.7 million people unemployed. The employment to population ratio increased to 58.7.

Overall, the latest employment report was much better than many have suggested. Of course there are still many supply chain issues, inflation has begun to creep up and labor shortages have also been plaguing the recovery. This is exactly where Tom would have provided commentary about the overall economy and what we should do about it. Thank you Tom for all you have done for all of us.

By Thomas Cooley and Peter Rupert

The BLS announced that payroll employment increased 235,000 in August…about 500,000 than some had expected. However, there were upward revisions of 24,000 in June and 110,000 in July that took some of the sting off the disappointing August report. Private payrolls were up 242,000 while the public sector shed 8,000 jobs. Retail trade employed fell 28,500 and there was no change in leisure and hospitality employment.

While there has been a pretty steady increase in employment gains we have not yet climbed out of the pandemic driven decline. The leisure and hospitality sector is still 10% below its pre-pandemic high. The retail sector, however, has basically recovered. Total payroll employment is about 4% below the pre-pandemic high. Average hours remained at 34.7 for the third consecutive month. Average hourly earnings also ticked up from $30.56 to $30.73 but these increases get diluted from the rise in inflation.

The household survey revealed an unemployment rate decline to 5.2% following an increase in employment of 509,000, 318,000 fewer unemployed and a labor force increased of 190,000. The pandemic has kept the unemployment for the Leisure and Hospitality well above its pre-pandemic level.

With the Delta variant surging and inflation rising as well does not bode well for the near term if there are more lockdowns and the Fed stops playing nice.

By Thomas Cooley and Peter Rupert

So, forecasts by economists for July employment ranged between 350,000 and 1.2 million. I am pretty sure we have never before seen such a wide discrepancy in forecasts, just saying what crazy times we are living in. The BLS announced that July employment rose by 943,000 with 703,000 coming from private employment and 240,000 coming from the government. The gains were widespread with only retail trade showing a meaningful decline of 5,500. Although the economy continues to improve there is still a bit of a way to go. Employment is still about 5.7 million below the pre-pandemic high. Initial claims remain elevated but continued claims fell to a new post-pandemic low.

Average hours of work were strong at 34.8 and last month’s hours were revised up from 34.7 to 34.8 as well, so that aggregate hours increased by about 0.6%. Average hourly earnings increased from $30.43 to $30.54, 0.36% over the month and 4.4% annualized. Unfortunately the CPI year over year outpaced the average hourly earnings year over year and so real earnings have fallen.

The household survey showed a 1,043,000 rise in those employed and a 261,000 increase in the labor force. There was a 782,000 drop in the number of people unemployed. All of this leading to a decline in the unemployment rate from 5.9% to 5.4%, the lowest rate seen since the onset of the pandemic.

Of course it remains to be seen how the newest Corona variants will spread, however we are already seeing increased public health concerns and new mask requirements in place. Such risks will make it even more difficult to forecast where the economy might be several months from now.

By Thomas Cooley and Peter Rupert

The Bureau of Economic Analysis announced that real GDP grew at a 6.5% annual rate in Q2. Q1 was revised down to 6.3% from 6.4% and Q4 was revised up to 4.5% from 4.3%. Moreover, real GDP has now surpassed the highest pre-pandemic level, $19.2 trillion, and is now $19.36 trillion. Personal Consumption Expenditures rose 11.8%. The big downside is with investment that declined for the second straight quarter. The report was pretty much in line with expectations, a bit lower, but we are still in unchartered waters so pretty hard for people to be making predictions.

Initial Claims

Initial claims fell 24,000 to a still worrisome 400,000 and averaged 395,000 in the month of July after averaging 394,000 in June. Continuing claims rose 7,000 and remain elevated.

Personal income rose 0.1% between May and June with personal consumption expenditures rising 1.0%.

Overall, the economy is growing but with the new Delta variant there are some risks over the next few months. In addition, inflation has become the talk-of-the-town and it will be of interest to see how the Fed responds.