Underwhelming Job Growth

By Thomas Cooley, Ben Griffy and Peter Rupert

The BLS announcement of a 98,000 increase in payroll employment for March was far below expectations. Moreover, both the January and February employment growth numbers were revised down, -22,000 and -16,000, respectively. Many forecasters estimated job growth between 180,000 to 200,000, especially given the 236,000 increase from the ADP report. The household employment numbers shot up 472,000.



There was a decline in the number of unemployed persons, down 326,00. while labor force participation held steady at 63% and the employment to population ratio increased slightly from 60.0 to 60.1. Combined, these changes led to the headline unemployment rate ticking down to 4.5%




Average hourly pay rose from $26.09 to $26.14 while weekly average hours of work remained at 34.3 for the second consecutive month.


Other indicators of economic health, like the composition of jobs, suggested improving conditions: part-time for economic reasons fell by 151,000, while the number of marginally attached workers fell by nearly 150,000. In combination, it seems that conditions have improved for those without strong ties to the labor market. The composition of the unemployed continued to show signs of improvement.


Where The Jobs Are

The employment gains were largely in the service producing sector, up 61,000 despite a 29,700 decline in retail trade. Professional and business services was the largest gainer in the services sector, up 56,000. Construction jobs increased by 9,000.






Upward Revision to Q4 GDP

By Thomas Cooley, Ben Griffy and Peter Rupert

The third and final estimate of Q4 GDP growth reveals an upward revision from 1.9% in the advance and 2nd revisions to 2.1%. The increase came largely from a full one percentage point increase in PCE, from 2.5% in the advance estimate to 3.5% in the 3rd.



Fixed investment was revised down slightly, from 9.4% to 9.2% with a fairly large downward revision to intellectual property rights, falling from 4.5% in the 2nd estimate to 1.3% in the final. Non-residential fixed investment grew at 0.9% while residential grew at near double digits, 9.6%.



Exports fell by 4.5% while imports shot up 9.0%, leading to a large decline in net exports.


With the final estimate now in for real GDP, 2016 growth was the slowest since coming out of the Great Recession, 1.6% (tied with 2011).



Fed Raises Interest Rates On Strong Jobs Report

By Thomas Cooley, Ben Griffy and Peter Rupert

The Federal Reserve, as expected, increased the target Federal Funds rate by 25 basis points today in a sign the monetary policy is returning to normal after years of historically low interest rates. With inflation near the target level and continued strong employment growth the stage was set for the FOMC to continue pushing up the Federal Funds Rate and Fed officials for the past few weeks have been signaling strongly that a rate hike was imminent. Todays announcement set expectations for two more rate hikes this year conditional on the data.

The last compelling piece of evidence fell into place with the release of the establishment survey  last Friday by the BLS.  It showed continued strength in the labor market. Payroll employment increased 235,000, with gains spread across almost all sectors. Retail trade, however, was down 26,000 and employment in motor vehicles and parts declined by 8,000. The private sector added 227,000 and government added 8,000. The mining sector (oil and gas mainly) added 9,000. Payrolls were revised up 11,000 in January and down 2,000 in December.




Average weekly hours remained at 34.4, although the index of aggregate weekly hours increased 0.2%. Average hourly earnings moved up slightly, from $26.03 to $26.09.


The household survey admitted a surge in employment of 447,000.  The employment to population ratio also increased, from 59.9 to 60.0. The labor force participation rate increased, from 62.9 to 63.0 as a result of a 340,000  increase in the labor force. The number of persons unemployed dropped by 107,000, leading to a drop in the unemployment rate from 4.78% to 4.70%. In addition, the number of persons unemployed more than 15 weeks dropped by 184,000.



This is a remarkably healthy picture of the labor market, a contrast to the way it was depicted by the President Trump prior to his election.  But our analysis of the election results in November highlighted the importance of manufacturing job losses for Trump’s victory.  His primary message to voters was a promise to save and create traditional blue collar jobs. In this and subsequent posts we are going to track where the jobs are being added with the goal of providing a more nuanced picture of how the labor market evolves under this administration.

Where the Jobs Are

As a starting point it is useful to note that for several decades employment growth has been dominated by increases in service sector jobs. Manufacturing jobs have been in secular decline as a share of the labor force. That is the underlying reality of this economy.


Against this long term background, we can contrast recent employment growth in what are traditional blue collar jobs – manufacturing, construction, mining. Manufacturing has not recovered from the decline following the great recession, while construction has been steadily rebounding from it’s trough.  Mining, which includes the energy sector, rebounded rapidly from the recession, driven by high oil prices, and has since collapsed as prices fell.  The least volatile component of employment is services, rebounding steadily since 2009. Although much attention has been focused on manufacturing and other traditional blue collar jobs the blue collar jobs of this economy in the future are in the service sector – in health care, retail and the like. So it is misleading to focus only on the traditional blue collar jobs.



Ultimately, the test of this administration will be how many jobs it generates relative to the working population. There is no perfect indicator of this, but one useful benchmark is the employment to population ratio.  In the graph below we show how the employment to population has evolved over various presidential regimes. The clear champion job creator was Ronald Reagan followed by Bill Clinton. In subsequent posts we will track how the current administration compares as well as tracking where the jobs are created.






A Healthy Labor Market For The New Year

By Thomas Cooley, Ben Griffy and Peter Rupert

January employment numbers released by the BLS reveal a 227,000 increase in payroll employment, but a 40,000 decrease in November after the final revision and a 1,000 increase to December. Total private employment, however, was up 237,000 as the government shed 10,000 jobs. The service sector showed the largest increase with 192,000 more jobs. Mining and logging (oil largely) increased for the third consecutive month. Average job growth for the last three months is 183,000 similar to what it was in 2015. This is not spectacular, but it is steady.   empchgm-2017-02-03

Average weekly hours remained at 34.4 and average hourly earnings increased very slightly, from $25.97 to $26.00.



The household survey showed an increase in the labor force, the participation rate climbing to 62.9% and the employment to population ratio increased to 59.9. This is encouraging if it signals that workers who have been sitting on the sidelines are coming back into the labor force. However, the number employed fell somewhat and those unemployed rose, so that the unemployment rate increased slightly, from 4.72% to 4.78%. The number unemployed 27 weeks or longer ticked up slightly.






The productivity report on February 2 revealed a 1.3% increase in output per hour for the fourth quarter of 2016. Output increased 2.2% and hours increased 0.9%. Unit labor cost rose 1.7%, reflecting a 3.0% increase in hourly compensation alongside the 1.3% increase in productivity.



The overall labor market picture is one of steady progress but not much pressure on wages. This sets the table well for the Fed’s plan to gradually raise rates over the course of the year. There is no reason to hurry and no real reason to back away from their plan.




2016 Ends on a Quiet Note

By Thomas Cooley, Ben Griffy and Peter Rupert

Fourth quarter real GDP grew at a 1.9% seasonally adjusted annual rate, according to the advance estimate, as announced by the Bureau of Economic Analysis. Overall, for 2016 GDP increased at a 1.6% clip, one full percentage point lower than the 2.6% increase in 2015 and also lower than the 2.4% growth rate posted in 2014. Although, the year-over-year change has somewhat reversed its downward trend that began in 2015. Compared to other recoveries, our current one depicts slower growth coming out of the trough than previous recoveries going back to the 1960’s. Note, however, that several of the recoveries had slipped back into recession by this time, some eight years after the trough. According to the NBER business cycle dating committee there have been 11 cycles since 1945, the average duration during that time span from trough to peak is 58.4 months.




The principal contributors to the Q4 growth were personal consumption expenditures (contributing 1.70) and investment (contributing 1.67). The decline in exports and increase in imports were the largest drag on growth with net exports contributing -1.70. Over the year, real PCE grew 2.7%, only slightly lower than the 3.2% growth in 2015 and 2.9% in 2014.




Overall for 2016 investment fell 1.5%, nonresidential structures down 3.1%, equipment down 2.8 but intellectual property products up 5.0%.