U.S. Economic Snapshot

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.

By Thomas Cooley and Peter Rupert

The BLS announced establishment employment increased 850,000 in June, beating estimates by a fairly large margin. Private employment was up by 662,000. The service sector was up 642,000 with leisure and hospitality the bulk of that increase, rising 343,000. So the leisure and hospitality sector has been steadily improving month by month as hotels and restaurants continue to open. Although there has been a lot of chatter about how difficult it is to fill open jobs. The latest data show that the number of job openings is at an all time high and about equal to the number of people unemployed.

Ok, so why do we have a question mark in the title? After all employment growth in June is the highest since last August. While the employment growth numbers are certainly robust, the report also said that average weekly hours fell from 34.8 to 34.7. That seems small, no? Well, actually no. Why? So last month in May employment was 144,909,000 and average hours of work was 34.8. Total hours of work then is 144,909,000 x 34.8 = 5,042,833,200. In June there were 145,759,000 employees who worked an average of 34.7 hours per week, giving 5,057,837,300. That’s an additional 15,004,100 from May to June. If the average workweek is, say 34.7 hours per worker, then we can translate that increase into an employment gain by dividing the increased hours by 34.7: 15,004,100/34.7 = 432,395 additional employees. The point is that there was an addition of 850,000 employees but they worked fewer hours on average. While current employment trends are, of course encouraging, a truer comparison of these employment reports suggests that 432,395 net “employees” were added from an aggregate GDP perspective. That is, the contribution to output is less than one would expect merely looking at the 850,000 employment gain.

Average hourly earnings have more than rebounded in the hard hit sectors like leisure and hospitality and retail. For June, year-over-year earnings growth in leisure and hospitality was 7.11% and retail 6.26% while total nonfarm growth was just 3.58%. Note, however, that the recent surge in inflation has damped real earnings growth substantially.

Household Survey

The household survey showed that employment fell by 18,000. The labor force increased 151,000 and both the employment to population rate and labor force participation rate were unchanged. The number of unemployed persons rose 168,000 and the unemployment rate ticked up from 5.79% to 5.89.

Initial Claims

Initial claims for unemployment insurance fell substantially, down 51,000 to a new low since the pandemic began, 363,000, although a still-elevated number. On the other hand, continued claims rose 56,000, continuing to be stubborn. The insured unemployment rate remained at 2.5% for the fourth consecutive week. Moreover, those unemployed 27 weeks or longer increased 233,000.

By Thomas Cooley and Peter Rupert

The BLS announced that payroll employment increased 559,000 in May and the three month average at 541,000. The increase was widespread across the various sectors aside from construction, declining 20,000 and retail trade down 5,800. The service sector increased 489,000, leisure and hospitality led the way with a 292,000 increase.

Weekly hours of work stayed at an elevated 34.9 for the third consecutive month. During the pandemic, fewer workers were working longer hours and we expect average hours of work to come down once the affected sectors ramp up. Average hourly earnings rose $0.15 to $30.33.

Household Survey

The data from the household survey showed an increase of 444,000 employed individuals, however the labor force declined 53,000 and the labor force participation rate fell from 61.7% to 61.6%. The number of persons unemployed fell by 496,000. These changes led to a fall in the unemployment rate from 6.09% to 5.79%. Long-term unemployment fell by 431,000.

Unemployment Claims

Initial claims for unemployment fell by 20,000 to 585,000, continuing the downward trend. However, continued claims has been quite stubborn and increased 169,000 to 3,771,000.

It is clear that the various backstop unemployment policies have had an impact on the speed of adjust and its allocation across sectors. We will need to see some of the more generous policies end before the economy tries to reallocate jobs and effort on its own.

Headline unemployment rates are essentially meaningless at this point because may have stopped participating in the labor force. There are encouraging signs that the economy is ready to reallocate jobs, perhaps with healthier wages, when supply chain issues get resolved and government’s artificial supports are removed.

Everyone is expecting a robust recovery but the impact of conditions in the rest of the world remains unknown.

By Thomas Cooley and Peter Rupert

The BLS announced that payroll employment increased by 266,000 in April. Some had (thought/hoped/wished) the economy would add something like 1 million jobs. Not only was the 266,000 addition much lower than expected, the March number was revised down from 916,000 to 770,000 but February up an additional 68,000. As vaccines have become more prevalent and cases falling, some sectors that were more negatively affected have seen some expansion. In particular, leisure and hospitality employment increased 331,000; although, that sector is still only 83% of its pre-pandemic level. Retail employed dipped down 15,300 and temp help fell 111,400.

Average hours of work rose to 35.0, matching that of January and substantially higher than the pre-pandemic readings. Employment is still about 5% below its pre-pandemic level, therefore there are fewer workers working more hours now compared to last February. Average hourly earnings increased $29.96 to $30.17.

Household Data

Employment in the household data rose 328,000, with employment of women falling 8,000 and employment of men rising 336,000. The largest one month increase in employment was by women last June, increasing nearly 3 million. Last month employment of women rose 595,000 while employment of men increased by 15,000.

Where Do We Stand

Between February, 2020 and April, 2020 employment fell by 22,092,000, one year late the economy has gained back 14,147,000 jobs, or 64%. Looking at the Great Recession it took roughly 5 years to get back 64% of the jobs. Evidently, these are very different episodes and comparisons are not very useful.

The number of job openings from JOLTS now stands as a series high 8,123,000 (the series began in December of 2000). The number of unemployed persons now stands at 9,182,000. Another way of looking at this comes from the Beveridge Curve that just plots the same data in a different way. Again the pandemic appears much different compared to the Great Recession. Why have jobs come back so fast now? One explanation is that in the current environment jobs were not really “destroyed” as in a regular recession (whatever that means!). Instead, jobs were mandated shut by government. Further, self-employment fell substantially during the Great Recession and has not recovered. It also fell during the pandemic but is now higher than the pre-pandemic level.

Initial Claims

Initial claims showed a substantial decline last week but continued claims rose. Those unemployed 27 weeks or longer fell somewhat but represents about 43% of the unemployed persons.

Inflation

The Consumer Price Index increased 0.8% over the month and year-over-year was up 4.2%. Used car prices led the way, increasing 10% over the month and 21.0% over the year. Airline prices rose 10.2%. During the webinar with Loretta Mester she made it very clear that the Fed is obviously watching and believe the recent rise is transitory. This was reiterated by Vice-Chair Richard Clarida:

These one-time increases in pries are likely to have only transitory effects on underlying inflation, and I expect inflation to return to — or perhaps run somewhat above — our 2% longer-run goal in 2022 and 2023,” he said, adding “this outcome would be entirely consistent with the new framework the Fed adopted in August 2020

Recent speech to NABE