The BLS announced that payroll employment in December rose 145,000 with 139,000 in the private sector. October saw 4,000 in downward revisions and November down 10,000. Manufacturing declined by 12,000 while the construction sector gained 20,000.
Average weekly hours of work remained at 34.3 for the third straight month. Average hours are the lowest they have been since 2011 suggesting less intense use of the labor force. Average hourly earnings rose slightly to $28.32 from $28.29.
BTW, women are now 50% of the total nonfarm workforce.
Overall the data are consistent with the view of an economy that is growing at a most pace. The unemployment rate remains at a fifty year low, jobs are growing but more slowly and wages are keeping growing in real terms but at a slow rate.
All of this suggests that the Fed has achieved its goal of a soft landing at the end of a record expansion. Few will anticipate more stimulus from monetary policy.
The BLS released the November Employment Situation Report and it continued to show a robust economy that added +266,000 new jobs last month. Further, job growth for the past two months was revised upwards by +41,000 jobs. The end of the GM strike boosted employment in the auto sector by +41,300, but job growth was widespread and robust. There was a +60,200 increase in health care and social assistance.
Average weekly hours stayed at 34.4 for the fourth consecutive month. Average hourly earnings across all private non-farm jobs increased slightly and year on year average hourly earning increased by 3.1%. This is modest given the tightness in the labor market but well above PCE inflation.
In the household survey the BLS announced that the labor force participation rate fell from 63.3 to 63.2. Importantly, the participation rate for prime age workers (25-64) remained at 82.8%, its highest level sine 2009. The employment to population ratio remained unchanged last month.
The strong job market and steady wage improvement should continue to support the consumer spending that has kept the economy growing steadily. As with recent history, there is nothing evident here to support continued Fed easing at the next FOMC meeting. But recent Fed decision making seems to have been driven more by the view that the neutral rate of interest – the rate that supports the economy at full employment and maximum output without inflation – has fallen significantly. Nonetheless the market would be surprised by further Fed easing in the near future given the strength of the US labor market.
The BEA Announced the Advanced Estimate of Third Quarter GDP and it showed an economy still growing but moderating to 1.9%. Consumers continued to power the economy with personal consumption expenditures increasing by 2.9% and residential fixed investment increasing by 5%.
While consumers have remained positive and keep the economy humming, the worry for some time has been the about the impact of weakness in our trading partners and the ongoing trade wars on business and particularly on business investment. The latter reflects something about firms views of the future state of the economy. Business fixed investment slowed in the third quarter, although less than it did in the previous quarter. Inventories increased in the quarter and it may be that these will hold back production in future quarters.
Labor Report
The BLS announced that non-farm payroll employment from the establishment data increased 128,000 for October. On top of that there were very large upward revisions to August (up 51,000) and September (up 44,000) of a total of 95,000, making the labor market much stronger than originally reported.
The private sector added 131,000 while government shrank by 3,000. The decline in government employment was led largely by a federal government cut of 17,000, many of which were 2020 census workers. In addition, there was a 41,600 decline in the motor vehicles and parts category reflecting the recent UAW strike. Retail trade has shown two consecutive months of an increase, rising 6,700 in September and 6,100 in October.
Average weekly hours hours kept steady at 34.4 despite the decline in manufacturing hours. Average hourly earning were also up slightly.
The household survey also showed serious labor market strength with the labor force rising 325,000 and employment up 241,000. The labor force participation rate increased from 63.2 to 63.3. The unemployment rate inched up slightly from 3.52% to 3.56%.
Big Picture
It is not clear what is driving Fed decision-making and the communications have been woeful. Chairman Powell cited the desire for insurance against the impact of trade worries. It is unclear that such insurance works or why it would affect the investment decisions of firms. The Fed also signaled that it is finished with rate cutting for a while. Once again there is no hint at what “rules” they are following.
In a serendipitous bit of timing, the BEA’s Advanced snapshot of the U.S. economy in the third quarter was released on the same day that Fed announced it’s policy decisions from the October FOMC meeting. In a sign of concern they decided to cut rates yet again in spite of the signs of a strong U.S. economy. So much for “data driven” Fed decisions?
The FOMC will convene for two days this week on Tuesday and Wednesday for policy deliberations. There seems to be consensus that the Fed will cut rates another 25 basis points following the recent 25 bp cut in July. The problem is that there is little by way of data that would indicate a cut at this time. Neither the output numbers nor labor market indicators suggest it.
Real GDP growth has remained fairly steady and many components show decent strength. While year-over-year growth has trended down a bit over the past year it is still averaging over 2% for the past few years.
Personal consumption expenditures (PCE) are solid, possibly reflecting confidence by consumers, with both durable and non-durable goods showing continued steady growth. There has been much talk about how the U.S. consumer is keeping the U.S. economy going with salutary impacts for our trading partners.
After taking a major hit during the Great Recession, investment has taken off and is now almost a half a trillion larger than before the recession.
Labor markets continue to show strength in pretty much every dimension. Both the headline unemployment rate and the U6 rate are at very low levels, falling below the levels seen in the run up to the Great Recession. Real average hourly earnings have picked up and the workweek has been fairly steady over the past several years.
There are more vacant jobs posted than unemployed individuals searching for them in every region of the country. Moreover, the Beveridge curve (plotting unemployment rates against job vacancies) has completely reversed itself since the Great Recession. Quit rates are pretty much as high as they have ever been since the JOLTS data began and layoffs and discharges at their lowest level.
So, what is driving all the negativity? Many have mentioned trade uncertainty. But the stock market seems to be defying those concerns. The question for the Fed is simply: Are the current trade fears large enough to justify another cut?
Nothing that we see in the current economic data suggests that another rate cut is called for. The Fed has promised “data driven” decisions so any decision to ease should be supported by the data that justifies it. The Taylor Rule suggests (of course it does not imply what the Fed should be doing) that the current level of rates is just right.
Is the Fed letting itself be stampeded by market expectations and Donald Trump’s tweets? It is a sad sad day if that is true.
The BLS announced an increase in payroll employment of 130,000. The private sector added only 96,000 jobs. The government sector increased its payroll by 34,000, due to the temporary hiring of census workers for the upcoming 2020 census. June and July payrolls were revised down, -15,000 and -5,000, respectively. While the headline number undershot expectations (around the 150k mark) digging into the report seems to show more strength than weakness.
This is the seventh straight month of decline in retail trade employment, falling 11,100 and the sector has shed 83,700 jobs since February. There were also some small scattered losses: mining and logging down 5,000; utilities down 1,400 and a couple others even smaller. Health care and social assistance increased 36,800.
On the positive side, average weekly hours increased from 34.3 to 34.4. Average hourly earnings rose $0.11 to $28.11. Moreover, earnings have been trending up and with inflation at bay, real earnings have also been rising.
The household survey also had some signs of strength. The labor force increased 571,000 and the number employed rose by 590,000. The number unemployed fell by 19,000. Overall, the unemployment rate fell from 3.71% to 3.69%.
The Jobs Opening and Labor Turnover Survey continues to show strength in that there are still more job openings that unemployed persons.
The Federal Reserve pays a lot of attention to the employment report. They have emphasized repeatedly over the past year that policy will be “data driven.” How then should this report impact policy? There is now talk about another interest rate cut at the Fed’s next meeting in September. We see little in this employment report that would suggest such a cut. Other data also do not really point to a cut. The last GDP report was on the strong side, consumption growth was up 4.7%, for example. Yesterday’s productivity report, that showed output per hour up 2.3%, also provides little support for a cut.
What is seemingly the principal motivation for a cut in interest rates is uncertainty over the effects of the trade war with China on GDP growth. Indeed a recent article from several Fed economists points to a reduction in GDP of nearly 1.0% due to trade uncertainty. Is that large enough to call for a “data driven” cut in rates? Why is the Federal Funds rate the right instrument for this shock? There is little evidence that firms are unable or unwilling to borrow so what problem will a rate cut address? It feels like it is time for the Fed to offer some more clarity on what it sees in the data.
The Bureau of Labor Statistics announced a 164,000 increase in payroll employment. There were 148,000 jobs added in the private sector and 16,000 added to government payrolls. There were 41,000 in downward revisions, 31,000 less in June and 10,000 less in May. The mining sector shed 5,000 jobs and retail lost 3,600 and Information was down 10,000.
These numbers certainly suggest some cooling in the labor market but it still is a healthy increase in employment. Labor force participation inched up slowly.
The trade war is having an impact on both exports and imports and eventually this will show up in the labor markets, but so far there is no cause for panic and little to support further Fed pre-emptive action.
Average weekly hours fell to 34.3 from 34.4. Average hourly earnings increased by from $27.90 to $27.98, a 0.28% increase.
The recent Fed cut and the tepid employment report likely mean the Fed will stay the current course with no expected cut in the near future without something more drastic happening in the economy.
The BEA announced a 2.1% growth rate for GDP in the advance estimate for the second quarter. Personal consumption expenditures led the way, rising 4.3%. Durable goods were up 12.9% and nondurables up 6.0%. GDP growth was well below the torrid pace of last quarter and recent history but the consumer kept the economy purring along.
Business fixed investment fell slightly, mainly in structures. Residential structures have declined in 8 out of the last 10 quarters. The evidence suggests some slowing of the economy but nothing too dramatic.
To what extent should these numbers set off alarms about the state of the economy? We know that European growth is weak and that China has slowed quite a bit as well; and yet the U.S. keeps on growing and labor markets are healthy. This is not a picture of an economy in trouble and in need of liquidity. Import growth has been flat and export growth has been negative and that dragged GDP down. These are both logical consequences of the trade war.
How should the Fed react in these circumstances? Markets have already priced in a rate cut by the Fed and every major commentator has urged the Fed to cut rates preemptively. Under these circumstances a rate cut may be benign but it is hard to see what good it will do when the real problem are trade wars and jobs skills. It will also be an unfortunate sign that Chairman Powell has allowed the Fed to become more politically responsive.
First, congrats to a long-time friend and first-rate economist, Chris Waller, who has been nominated to the Federal Reserve Board. Congrats to Judy Shelton as well!
Today’s employment report from the BLS blasted through “expectations” by adding 224,000 jobs. Expectations were in the 160,000 range. There were 11,000 in downward revisions, down 8,000 in April and 3,000 in May. Of course one month does not make or break a trend. Since climbing out of the depths of the recession, the labor market has shown remarkable stability. As many are aware we are now in the longest recorded economic expansion. The chart below shows payroll employment monthly change as well as the 12-month moving average.
The private sector added 191,000 jobs and government employment increased 33,000. Aside from a small decline in retail (-5,800) and negligible declines in mining and logging (-1,000) and motor vehicles (-200), the employment growth was robust. Service producing jobs increased 154,000 and goods producing increased 37,000.
The workweek remained at 34.4 for the third month in a row. And average hourly earnings increased 0.2%, from $27.84 to $27.90, up 3.14% year over year. Given inflation up 1.8% year over year implies real earnings growth.
The household survey also provided strong labor market signals. The civilian labor force jumped up 335,000, increasing the labor force participation rate from 62.8 to 62.9. The number employed was up 247,000 and the number unemployed crept up slightly by 87,000–all leading to an increase in the unemployment rate from 3.62% to 3.67%. The BLS defines the official unemployment rate as U3, plotted below is also the U6 rate: U-6 is total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. The U6 rate currently stands at 7.2%, up slightly from 7.1% in May, but lower than any time in the last two decades.
The big picture
The latest strong labor market signals most likely put the idea of a cut in rates by the Fed on the back burner as recession fears remain on hold.
By Thomas Cooley, Travis Cyronek, and Peter Rupert
The Bureau of Labor Statistics released the jobs report for May that was weaker than many had expected. Payroll employment increased 75k and, on, top of that, there were downward revisions for March (-36k) and April (-39k) totaling 75k. This report will likely do two things: (1) Stoke recession fears and (2) Further fuel expectations of a Fed rate cut. Since 2017 average employment growth is about 195k per month with a standard deviation of about 75k. So the 75k decline is nearly two standard deviations below the mean. As seen in the figure below, February employment numbers were also quite weak but bounced right back. However, two of the last four months have seen less 80k increases in payroll employment. In 2012 there were three consecutive months less than 100k.
There was weakness pretty much across the board with only the service producing sector showing any large increase, up 82k. The government sector shed 15k jobs so that the private sector ended up with a gain of 90k.
Average weekly hours remained at 34.4 for the second consecutive month. Average hourly earnings ticked up from $27.77 to $27.83, an increase of 0.2% and 3.1% year-over-year. With inflation so low, it means there are have real earnings gains over the last few years.
The household survey from the BLS showed an increase in employment of 113k and the labor force increased 176k. There was no change in the employment to population ratio or the labor force participation rate. The unemployment rate crept up slightly from 3.58% to 3.62%.
Output per hour (productivity) increased 3.4% in the first quarter and unit labor costs fell 1.6%. In addition, the BLS has begun calculating productivity by state. North Dakota has seen the highest productivity growth since 2007, California next highest and Louisiana
The BLS announced a 263,000 rise in payroll employment for April and 16,000 upward revision over the past two months.
What should be noted is just how difficult (and maybe not so useful) it is for economists to forecast even out a month. This from CNBC:
Economists expect that the job market remained strong in April, and the economy added 190,000 jobs, about the same as March. Markets were already on edge heading into the Friday employment report, and economists point to some variables that could impact the headline number.
For one, some economists say Boeing’s production slowdown could be a negative for manufacturing jobs, while government hiring of census workers could provide a surprise increase in payrolls in the tens of thousands. Goldman Sachs economists expect 20,000 workers were eliminated due to weather, but they still expect total jobs of 195,000. Bank of America economists expect an above average jump of 250,000 jobs. A tracker that the bank uses is seeing private payrolls rising 335,000. Some economists said there could be an upside surprise in the jobs data because of ADP’s strong report of 275,000 private sector payrolls in April. But Moody’s Analytics chief economist Mark Zandi said the number was suspect, and he expects April jobs from the Bureau of Labor Statistics to be closer to 175,000 to 200,000.
The bottom line: a range between 175,000 to 335,000!
Private payroll employment was up 263,000 with the government adding 27,000. There were a few small negatives as well. Retail trade fell for the third straight month, down -12,000 in April. Utilities and motor vehicle parts have also been weak of late.
Average weekly hours fell slightly from 34.5 to 34.4 and average hourly earnings rose from $27.71 to $27.77. That average hourly earnings is much above the CPI means there are gains in real earnings.
The household survey shows a decline in the labor force, down 490,000 so the labor force participation rate fell from 63.0 to 62.8. The employment to population ratio remained constant at 60.6. The unemployment rate fell to 3.58%, the lowest since the end of 1969.
The BLS released productivity on May 2: output was up 4.1% and hours up 0.5% leading to a 3.6% gain in non-farm business sector productivity. Unit labor costs in the non-farm business sector declined 0.9 in the first quarter of 2019 and increased only 0.1% over the last four quarters. Manufacturing sector labor productivity increased 1.7%, however output decreased by 1.0%, but hours worked decreased even more, down 2.6%.
The big picture
The strength of the report, including continued wage gains, damps the likelihood the Fed will be talking about any rate cuts soon.
