The BLS announced that payroll employment rose by 49,000 in January. The added pandemic lockdowns over the past couple of months in many areas pushed retail employment down 37,800 and the leisure and hospitality sector shed 61,000 jobs. The health care sector also saw a decline in employment of 29,600. The declines can all be traced to the winter surge in the coronavirus. As the pandemic goes, so goes the economy with all of the hits being taken in the most vulnerable service sectors.
Average weekly hours rose slightly as did average hourly earnings, but not much to write home about.
Labor force participation rates fell, 61.5 to 61.4, while the employment to population ratio increased, 57.4 to 57.5. The unemployment rate fell to 6.3% from 6.7%. The decline came from a fall in the number of people unemployed, a rise in the number employed and a small increase in those not in the labor force.
With the infection rate now subsiding and more people getting vaccines, most are expecting an improving jobs picture over the next few months. Many other parts of the economy continue to be strong, a fact reflected in the frothy financial markets. There will continue to be reallocation of jobs in retail and in travel and leisure.
The BEA announced that the advance estimate for Q4 real GDP increased 4.01% on an annual basis. Final Q3 growth was 33.44%. Over the year real GDP fell 3.5%, a historic collapse. But GDP in the second half of the year has continued to bounce back after the first half disaster. Given that continued increase there is some evidence that the recovery will look “V” shaped in the end.
Real personal consumption expenditures increased 2.5% in Q4 and was down 3.9% over the year. Real gross private investment grew at 25.3%, with equipment investment increasing 24.9% and residential structures up 33.5% for the quarter.
The personal savings rate fell slightly but remains elevated at 13.4%.
The BEA released personal income today and showed that real disposable personal income increased 0.22% over the month while real personal consumption expenditures declined 0.61%. It appears that after the wild gyrations things may have settled down somewhat.
Unemployment Claims
Initial claims and continued claims were also released this morning. Both showed improvement with initial claims falling 69,000 and continued claims down 203,000. The composition of the unemployed has also been changing with a decrease in the share of job losers and an increase in re-entrants.
The economy continues to show signs of underlying strength but obstacles will remain until the pandemic is under control enough for services and the retail sector to recover.
Count us among those who believe the Fed has done all it can or should to support the recovery. With Powell at the Fed and Janet Yellen at the Treasury we can be assured of thoughtful cooperative monetary and fiscal policy as the year progresses.
December’s employment report ends a dismal year on a dismal note. The BLS establishment data showed a decline of 140,000 workers. Private payrolls fell by 95,000 as the government shed 45,000 jobs. The recent lockdowns from the spike in COVID cases and hospitalizations drove the leisure and hospitality sector to reduce employment by 498,000 while retail trade employment grew by 120,500. Since the large declines in March and April the labor market has recovered about 54% of those losses. Overall, the labor market lost about 9.5 million jobs over the year.
For a while, after the March meltdown, it looked like the economy, aided by a robust stimulus response, might be able to bounce back. The optimistic view (not our view!) was that we might have a v shaped recovery. But the government’s pathetic response to the pandemic, failures of testing, mitigation measures and lack of leadership, made the resumption of economic activity dangerous and halting and the second surge has slammed on the brakes.
Average weekly hours fell slightly to 34.7 and average hourly earnings increased from $29.58 to $29.81. Average hourly earnings in the leisure and hospitality as well as the manufacturing sector saw a huge increase early on in the pandemic as the lower paid workers lost their jobs but then has continued to come down as many of the workers returned to work. The construction sector did not see those massive swings in average hourly earnings.
The household data showed very little movement. The labor force increased slightly, up 31,000 and the number employed up by 21,000. The labor force participation rate and the employment to population ratio were unchanged and remain well below the pre-pandemic levels. The unemployment rate also remained constant from the previous month.
The composition of the unemployed has also been changing with more of the unemployed coming from reentrants and fewer from job losers, although the bulk of the unemployed are from job losers. Moving forward, the number of those unemployed long-term, 27 weeks or more, will continue to climb since the pandemic-related losses are only in the 9th month or so.
Initial claims have been quite sluggish and remain elevated, indeed we are still seeing around 800,000 people applying for first time unemployment insurance every week. Moreover, the not seasonally adjusted claims rose by about 80,000. Continued claims, however have been trending down, but only slightly so.
There is certainly a strong desire to resume a normal pace of activity. People are tired of lockdowns and remote lives. But, right now the virus is in control. The great hope is that widespread vaccination will enable things to return closer to normal over the next several months. But the roll out is being brought to you by the same architects who designed our initial response and our testing programs. Temper your optimism with that thought.
The BLS announced that payroll employment increased 245,000 in November, continuing a clawback to pre-pandemic levels. However, since June the additions have been moderating. Private employment grew by 344,000 while government employment fell by 99,000. Employment in the retail sector shed 34,700 jobs after gaining 95,100 the previous month. The rise in pandemic hospitalizations will likely cut into employment in both that sector as well as leisure and hospitality.
There is no way to sugarcoat the fact that this is a disastrous report. It bodes poorly for the economy as a whole. The fact that the pandemic is just entering a more robust and deadly phase means the larger consequences of what we see in the labor market are going to be dire. On top of that, many of the support policies that were put in place in the CARES Act are expiring this month.
Average hours remained at 34.8 for the third straight month, the highest level in a decade. Average hourly earnings rose to $29.58.
The household survey showed an employment decline of 74,000. The labor force declined 400,000 and the labor force participation rate declined from 61.7 to 61.5. The unemployment rate fell from 6.88 to 6.69.
The fact that workers are dropping out of the labor force and ceasing active job search – means that many have few or no prospects and have given up. Fully 23% of the pre-pandemic workforce have given up on finding employment. This leads to inevitable scarring of their prospects for the long run.
There are no wise and hopeful interpretations of this labor report. The situation is dire and more fiscal stimulus is needed. But, the political process that could deliver it is broken.
The BLS announced that nonfarm payroll employment increased 638,000, however, private sector nonfarm employment increased 906,000 as the government side shed 268,000 jobs in October. Over the last two months government employment has fallen nearly half a million…but note that government for July was up 235,000 and in August up 465,000.
Overall the employment report was strong. Nearly every sector increased employment with retail up 103,700 and temp help services up 108,700. A slight decline in utilities and information, totaling 4,500. The employment to population ratio continues its climb but remains about four percentage points below the first of the year.
The household survey showed the unemployment rate fell from 7.86% to 6.88%. The labor force grew by 724,000 and the number unemployed fell by about 1.5 million. Last Thursday we saw further declines in both initial and continued claims. Initial claims have been moving down slowly over the past few weeks, while continued claims have been falling much more quickly.
Is The Recovery Stalling?
Although employment continued to rebound the pace of the recovery has slowed. So far the economy has made up about 55% of the 22.2 million decline in employment in March and April. This is not the robust V shaped recovery everyone hoped for and the reasons are clear. Reallocation takes time and it also takes a healthy environment and workplace where people can safely resume their normal activities. As the pandemic worsens, that is far from the reality.
It also seem clear that additional stimulus, which everyone has called for, could help to boost this recovery some. But it, and the welfare of the country, have fallen victim to the toxic politics in Washington D.C.
The BEA announced third quarter real GDP increased 33.1% seasonally adjusted at an annual rate…or 7.4% if not annualized. So, one might ask, “Why does the BEA annualize?” The answer is to make it easier to compare data since some data come out monthly, quarterly or annually. Most countries do not annualize the GDP numbers at all. For example, news reports show 3rd quarter GDP in Germany rose 8.2% and France up 18.2%, these are NOT annualized.
As a quick aside, note that 33.1% is not 4 times 7.4%. What annualization does it assumes that the growth rate for each quarter in the year would be 7.4%, so compounding is involved. The formula to annualize quarterly GDP say is: (((GDP_t/GDP_t-1)^4)-1)*100.
In any event, this was by far a record increase for the US with the next highest being 16.67% in Q1 of 1950. Given the crazy gyrations seen in 2020: Q1 down 5.0%, Q2 down 31.4% and Q3 up 33.1%, where are we relative to where we were at the beginning of 2020? Real GDP in 2019 Q4 was $19.25 trillion and today stands at $18.58 trillion, so we are down about 3.5%.
Over a longer time span, the Great Recession and COVID-19 have pushed our economy well below our long run (linear) trend on a per capita basis. And although the record bounce-back looks like a sharp V shaped recovery there has been significant “scarring” of the economy and there are sectors that simply won’t recover anytime soon – possibly never. Most obvious are the sectors everyone cites – travel, leisure, hospitality, retail, aeronautics, higher education, commercial real estate and fossil fuels. It goes without saying that all of these imply substantial resource reallocation.
Many, many records have been set for the various GDP components. Personal consumption expenditures up 40.7% with durable goods up 82.2%. Gross private domestic investment up 83%, equipment up 70.1%, nonresidential structures down 14.6% and residential up 59.3%. Households are investing in their home-based consumption, buying bigger houses, better appliances, newer cars and so on. But investment in non-residential structures dropped like a rock and shows no sign of recovery.
Obviously the pandemic looks nothing like a “standard” recession. It is easy to see from the graphs that typically it takes years for the economy to reach bottom and then many more years to get back to where it was before the recession hit. During the pandemic things are happening at warp speed. Massive one month or one quarter declines with a rebound the next month or quarter.
The labor market continues to be stressed and with the failure of Washington to deliver more stimulus we may soon see increased labor market pain and a drop in consumption as well. Next week will give us the latest snapshot of labor market conditions.
The BLS reported nonfarm payroll employment rose 661,000 in September and reported 145,000 in upward revisions , 27,000 for July and 118,000 for August. The private sector gained 877,000 jobs while the public sector shed 216,000. Although the headline number fell below a million for the first time since May, the gains were broadly spread with every major sector except government increasing employment. Moreover, the not seasonally adjusted increase was 1,113,700. This is an impressive rebound but there is more to be done.
Average hourly earnings ticked up slightly and average hours of work increased to 34.7. Both May and September average hours at 34.7 are the highest levels dating back to the beginning of the series in March, 2006.
The household survey showed a decline in the labor force of 695,000 and nearly a million fewer unemployed persons (970,000). The unemployment rate fell to 7.86% from 8.42%. After the great recession it took about 7 years for the unemployment rate to fall by half, from about 10% to 5%. The fall to half of the unemployment rate after the pandemic has been fast, about 5 months, it was the government, stupid. Keep in mind also that a drop in labor force participation caused by people opting to sit on the sidelines lowers the unemployment rate as well. The labor force declined by 695,000 and the labor force participation rate fell to 61.4 from 61.7.
The relationship between unemployment and job vacancies is known as the Beveridge Curve. What has been remarkable is that for all of the labor market turmoil, the job openings rate has not changed much. During the Great Recession the job vacancy rate fell roughly in half while during the pandemic it fell slightly and is now near its highest ever recorded. When the job vacancy rate is over 4% the unemployment rate is typically at or under 4%.
Seasonally adjusted initial claims fell somewhat, to 840,000 and continued claims fell to . Once again, however, the not seasonally adjusted claims actually rose slightly.
The overall picture in the labor market is of an economy that is resilient and capable of recovering fairly quickly. Key to that continued recovery is that individuals have the purchasing power to buy goods and services and the willingness to do so. In terms of consumption it is typical during a recession for durable goods expenditures to fall and take time to recover. As the following graph shows, however, the US is largely a service economy. All three components took a major hit with services the largest decline.
To get a better look at what has happened to the components, the graph below indexes the expenditures. Services remains much below its peak before the pandemic. Durable consumption, however, has rebounded sharply, taking only 4 months to recover to its pre-pandemic peak in January, 2020, and is now 9% higher than in January. The Great Recession showed a much different pattern. It took durable consumption about 5 years to get back to its previous high.
While spending has begun to return to prior levels, household debt has fallen for most categories. Given the lower levels of debt, households are in a position to ramp up spending when some of the uncertainty gets resolved. While the personal savings rate has fallen from historic highs, it is still about 14%. Moreover, nonfinancial corporate business debt as a percentage of the market value of corporate equities is also quite low.
The CARES Act went a long way to putting a floor under the fortunes and consumption of the weakest consumers. These “hand-to-mouth” consumers are the service workers who do not have assets to cushion them through an economic shock. Detailed transaction data show that spending by consumers in lower income zip codes has nearly recovered its level in January 2020 but spending in high income zip codes is still way off. The key to the recovery will be the return of well-to-do consumers and that will depend entirely on how safe they feel, i.e. controlling the virus.
The BLS establishment survey showed an increase of 1.371M workers and 1.027M in the private sector for the month of August. The bulk of the gain was in service producing jobs, up 984,000, with retail employment the largest gainer in that category.
Average weekly hours increased slightly, from 34.5 to 34.6. Average hourly earnings rose 11 cents to $29.47.
From the household survey (seasonally adjusted) there was an increase in the labor force and an increase in the labor force participation rate from 61.4 to 61.7. The employment to population ratio increased from 55.1 to 56.5. The number of unemployed persons fell by 2.788M. Thus, the unemployment rate fell from 10.2% to 8.4%. However, there are roughly 13.5M persons unemployed and only 5.9M vacancies, so it will likely take a while before the labor market is back to something like “normal” whatever that may be.
Initial and Continued Claims
The BLS seasonal adjustment methodology for initial claims and continued claims (insured unemployment) has been altered to reflect the widening gap between the adjusted and unadjusted data. The switch from multiplicative to additive factors will bring the seasonally adjusted data more in line with the not seasonally adjusted data. This issue was pointed out in this blog a couple of months ago, maybe they listened to us! The stark comparison can be seen in the latest large drop in the seasonally adjusted data reflecting the new factors. However the unadjusted claims were slightly higher than the previous week.
Overall, the labor market continues to mend. However, the mending is certainly not even across income and sector types. The lower earning employees were those hardest hit and are those that will likely take the longest to recover.
The Shape of the Recovery
While everyone would love to see a v-shaped recovery, the continued growth in employment from its trough is not a harbinger of one. Unemployment is still only a shade above where it bottomed in the great recession. And the mismatch between vacancies and unemployed workers is larger than it was during that recovery. This recovery will most likely be sluggish and a lot depends on how fast people get back to work. However, many of the jobs are gone forever and the speed of the recovery will depend on how fast the labor gets reallocated.
The BEA’s second estimate showed an upward revision of 1.2 percentage points…so that real GDP fell by “only” 31.7% on an annual basis instead of the 32.9 stated in the advance estimate. Private inventory investment and personal consumption expenditures (PCE) decreased less than noted in the advance estimate. Note that what “on an annual basis” means is that if GDP fell by as much as it did this quarter (9.1%) for four quarters it would lead to a 31.7% decline for the year. Make no mistake, however, 9.1% is an extremely large quarterly decline. Real PCE
Initial and Continuing Claims
Initial claims (not seasonally adjusted) fell to 822,000 after increasing the previous week. Continued claims fell to to about 14 million.
Personal Income and Outlays
The BEA released personal income and outlays for July with a 0.35% gain to personal income and a 1.92% gain in PCE. The personal savings rate fell to 17.8%.
While the economy continues its slow march back to something like normality, we are certainly not out of the woods, maybe the trees have thinned some though. Moreover, the stock market seems to have ignored the symptoms and the housing market has sprung back as well.
The BLS announced that seasonally adjusted nonfarm payroll employment increased 1,763,000 in July. The increases in May, June and July are the three largest gains in the history of the series that began in January of 1939. Over the last three months payroll employment has increased nearly 9.3 million. Of course March and April set records for declines, 1.4 million and 20.8 million respectively, totaling a loss of 22.2 million jobs. The May numbers were revised up by 26k while June saw a downward revision of 9k.
These reported numbers come from seasonally adjusted data. As mentioned by the BLS, seasonal adjustment accounts for “predictable” seasonal patterns and there is the problem! -COVID-19 is anything but a predictable pattern:
Looking at the not seasonally adjusted numbers reveals an increase in employment of 591,000. The two series were fairly close in March, April, May and June but, at times, may differ, as in January of this year and the latest numbers. Given the very unpredictable event, the not seasonally adjusted numbers may be more revealing.
The seasonal adjustment problem affects not just the Employment Situation Reports, but as we have pointed out the weekly new jobless claims numbers. In those unadjusted data recent months have continued declines in the new claims while the adjusted data show increases. The financial media almost never make the distinction.
Back to the reported seasonally adjusted numbers, service producing jobs accounted for the bulk of the gain, increasing 1.4 million.
Average weekly hours decreased slightly from 34.6 to 34.5. Average hourly earnings increased from $29.32 to $29.39.
The household survey showed an increase in employed persons of 1,350,000 seasonally adjusted (SA) and 1,681,000 not seasonally adjusted (NSA). The labor force participation rate fell from 61.5 to 61.4 (SA) and increased from 61.8 to 62.0 (NSA). The unemployment rate fell almost a full percentage point, from 11.1% to 10.2% (SA) and from 11.2% to 10.5% (NSA). The teenage unemployment rate fell by almost 4 percentage points, from 23.2% to 19.2% (SA). The employment to population ratio increased a half a percentage point, from 54.6 to 55.1. Before the COVID-19 shutdown the employment to population ratio had not seen a change like 0.5 for about 60 years. The magnitudes of all these changes make it very difficult to interpret the underlying condition of the labor market.
