U.S. Economic Snapshot

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

By Thomas Cooley and Peter Rupert

The BEA announced the advance estimate for Q1 GDP showing an increase of 6.39%. The increase was largely fueled by a massive increase in in consumption. Personal consumption expenditures were up 10.7%, with the purchases of goods up 23.6% coming from durable goods up 41.4%. Durables consumption was mostly fueled by the demand for motor vehicles. Government spending increased a solid 6.3% due to increase spending on vaccine distribution. Business investment was strongly positive wit much of it allocation to software and technology little on structures.

Going back a little farther in time it is obvious there was a recession in 2008-2009, less so in 2001. The huge gyrations coming from the pandemic make it very difficult to interpret the state of the economy.

Initial and continuing claims

Initial claims fell once again, however the data show the claims to be quite stubborn, remaining substantially higher than historical numbers, the last reading was 553,000. For example, initial claims in 2019 averaged about 210,000. Continuing claims (insured unemployment) have also been stubbornly high.

The prospect is for growth throughout 2021 in the U.S. The prospects for Europe and elsewhere are an open question.

By Thomas Cooley and Peter Rupert

Establishment Survey

The Bureau of Labor Statistics employment report showed that payroll employment increased 916,000 in March, 780,000 of that in the private sector. February’s job growth was also revised upward by nearly 90,00 jobs. All of this seems to foretell a robust recovery of employment in the coming months as the economy open up further. The pre-report estimates were in the ball park of 675,000 according to a Dow Jones poll so this was a happy surprise.. Service producing jobs were up 597,000 jobs as many of the COVID-shuttered sectors have started coming back online. Leisure and hospitality employment grew 280,000. Not all of the gains shown today, however, were COVID-related as warmer weather has also arrived and so to an increase in construction employment, up 110,000.

Before writing home with such good news it is useful to step back and look at the bigger picture…where are we now compared to just before the pandemic hit? In February 2020 employment was 152,523,000. As of today’s report there are 144,120,000: We are still down 8,403,000 jobs or roughly 5.5%. Leisure and hospitality employment was 16,915,000 in February 2020 and is now 13,781,000, about 19% below the pre-pandemic level. The usual interpretation of the monthly jobs report is how many new jobs have been created. Of course it is always the case that some jobs are just hires back into the same job; however, it is a welcome sign to have more and more people getting back to work.

The report showed strength in pretty much every super sector except temporary help services, declining very slightly. The average workweek increased substantially, to 34.9 from 34.6, almost reaching the 35.0 mark set in January, the highest since 2006 when the series for total private workers began from the BLS. Average hourly earnings fell slightly, from $30.00 to $29.96, likely reflecting the fact that many of the workers coming back on line are in sectors with typically lower earnings.

Household Survey

The household survey showed an increase in the labor force of 347,000. The number of people employed jumped 609,000 and number unemployed fell 262,000. The result of these changes decreased the unemployment rate from 6.22% to 6.05%. But labor force participation and the employment population ration continue to be a historically low levels, consistent wth an economic environemnt where many are still sitting on the sidelines.

Initial claims were released on Thursday and had a bit of a hiccup, rising to 719,000 compared to 658,000 the week before. Note, however, that the BLS revised its seasonal adjustments for 2016-2020 with this report.

Long term unemployment, those unemployed 27 weeks or more, continues to rise and the percent of the unemployed who are long term is nearly as high as during the Great Recession and considerable more than at any time since the data started in 1948. This is significant because these are the workers who experience “scarring” as a result of prolonged layoffs and this has implications for productivity in the long run.

So, where can we go from here? It is apparent that people are eager to get back to work and businesses are clamoring to re-open. As we go forward in the recovery from the pandemic we expect employment in the service sectors to rebound relatively quickly. The housing market is booming suggesting construction will likely continue to rise apace. Finally, manufacturing would be recovering even faster except for disruptions to global supply chains. Once these begin to get resolved there will come a little normality…maybe.

By Thomas Cooley and Peter Rupert

The establishment data from the BLS revealed a 379k gain in payroll employment resulting from an increase of 465k from the private sector and an 86k decline in the public sector. Goods employment fell 48k with construction the biggest loser, shedding 61k jobs. The service sector added 513k jobs, likely led by the reopening of leisure and hospitality businesses, up 355k. The data pretty clearly show the effects of the seesawing of pandemic related closures for the leisure and hospitality sector. The damage can also be seen in the unemployment rate for that sector at the onset of the closures, with the unemployment rate reaching nearly 40%.

There was a large decline in average hours of work, falling to 34.6 from 34.9, the highest recorded since 2006. The 34.9 mark was a likely result of the decline in part-time and shorter hours of the workers who lost their jobs during the pandemic.

The household data revealed little change in the civilian labor force, rising 50k with no change in the labor force participation rate, sitting at 61.4. The number employed increased 208k and the number unemployed decreased 158k. The unemployment rate was little changed, falling from 6.32% to 6.22%.

It remains to be seen how quickly labor force participation will spring back as more people get vaccinated and businesses re-open. Many expect there to be significant “scarring” effects of the prolonged separation from employment. At times the fundamentals of the economy seem largely sound, with strong monetary and fiscal support from the government and the Federal Reserve. We will stay tuned.