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.

Upward Q1 Revision to Real GDP

By Thomas Cooley and Peter Rupert

Today’s release of the 2nd estimate for Q1 GDP from the BEA brought a large increase, nearly double, in real GDP, compared to the advance estimate. The revised real GDP growth is 1.2% in the first quarter while it was 0.7% in the advance estimate. The positive revision has been a feature of first quarter estimates for several years and has sparked a lot of attention to the  seasonal adjustment.   There were significant revisions to final sales and some modest downward revisions to inventories. In addition, real personal consumption expenditures only grew at 0.6% (but were revised up from 0.3%), the weakest growth in over 5 years. .

There were downward revision to Q4 income growth which pushed the savings rate lower. Most of the markets’ attention was focused on the April report on durable goods issued this morning as well. It was very soft and some of the details were disappointing.



Both residential and non-residential fixed investment showed strong growth in the quarter, gaining 13.8% and 11.4%, respectively.


At the moment, the revised estimates will not do much to change the current thinking as to the state of the economy. The revision was a bit higher than expectations by many forecasters. We are just going to have to wait a little longer to see how the economy evolves as we near mid year. The Atlanta Fed’s GDPNow has revised down its forecast for Q2, from 4.1% to 3.7% after some of the latest releases, including today’s GDP and durable goods…still, 3.7% would be a very welcome outcome!


April Employment Report

By Thomas Cooley and Peter Rupert

The release of April’s employment report from the BLS showed an increase in payroll employment of 211,000, with 194,000 of that from the private sector. An upward revision of 13k for February and a downward revision for March of 19k nearly offset each other. There were only a couple of small declines throughout the major sectors. In the goods producing sector, durable goods fell 3k and in the service producing sector, employment in information fell 7k, the third consecutive decline in that area.


Mining and logging employment (mainly oil) has increased for the sixth month in a row although still about 6% below the level in 2008.



Average weekly hours of work rose from 34.3 to 34.4 and has been bouncing between the two since March, 2016. Average hourly earnings rose 0.3% from $26.12 to $26.19.



The household data showed little change in the labor force, up 12k, while then number of persons unemployed fell by 146k, leading to a decline in the unemployment rate from 4.496 to 4.404, the lowest in about a decade.

While the Fed seemed to brush off a weak Q1 GDP report, then stating, “Job gains were solid, on average, in recent months, and the unemployment rate declined,” kept the door open for a possible rate hike at the next meeting. However, while job gains are “solid” the trend over the past several months points to a slightly weakening labor market. The question for policy makers is: Was the recent Q1 weakness transitory or, in combination with the downward trend in employment, has the economy weakened?



Weak Q1 GDP Growth

By Thomas Cooley, Ben Griffy and Peter Rupert

The advance estimate from the Bureau of Economic Analysis shows the weakest GDP growth in three years…although 2015 Q4 (0.9%) and 2016 Q1 (0.8%) were nothing to write home about.


Consumption (lack of) played a large role in the decline, only up 0.3%, along with a $39.2 billion decline in inventories. This is clearly at odds with the surge in consumer and business sentiment following the election of Donald Trump. That optimism about the economy has yet to translate into real improvement. The deeper issue is whether the first quarter weakness will spill over into the second.  Most observers think not although we are probably not on track for growth greater than 2%.


On the positive side, investment expenditures came in strong, both non-residential and residential. Overall, fixed investment was up 10.4% with non-residential structures up 22.1%, equipment up 9.1% and intellectual property products up 2.0%. Residential investment was also quite strong, growing 13.7% in the first quarter.


Government consumption expenditures and gross investment was down 1.7%, the main contributor to the decline was national defense spending, down 4.0%. State and local government was also down 1.6%.



While the weak GDP report along with the earlier weak jobs report may lessen the resolve for the Fed to move aggressively on rate hikes, the recent surge in employment costs may be signaling a tight labor market.


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.