The BLS announced that payroll employment increased 303,000 in March, another solid reading that will likely change the Fed’s stance concerning the timing of cuts in the Fed Funds rate. The private sector added 232,000.
The construction sector jumped up 39,000, the largest increase since May of 2022.
Average weekly hours of work rose from 34.3 to 34.4 leading to a 5.7% (annualized) increase in total hours of work.
The household survey also showed considerable strength with employment increasing 498,000. The labor force increase 469,000 leading to an increase in the labor force participation rate to 62.7 (was 62.5). The number of unemployed persons fell 29,000 and the unemployment rate fell from 3.86% to 3.83%.
On April 2 the BLS JOLTS data showed that job openings changed little in February, at 8.8 million and the rate of job openings remained at 5.3% for the third straight month.
It was a pretty busy week for incoming data. Bottom line: The economy continues to reveal strong economic growth and maybe we have not “landed” at all, we are still flying.
Employment Situation
The BLS establishment survey showed that employment rose 187,000 in August. Although the gain was higher than in the previous two months, the June employment numbers were revised down by 80,000 and July down 30,000…employment was 110,000 less than previously reported entering August. The gain was less than the 271,000 average gain over the previous 12 months. Private employment gains led the charge at 179,000 with the service sector adding 143,000. The biggest gain came in health care, up 97,000.
Average hours of work increased from 34.3 to 34.4. That, combined with the 179,000 increase in private employment led to a large increase in total hours of work.
The household survey showed an increase in the unemployment rate from 3.50% to 3.79%. The number of people unemployed did rise by 514,000, however, there was also a 736,000 increase in the labor force. The labor force participation rate has been steadily increasing but is still below the pre-pandemic level. Basically, once the effects of the pandemic have receded there has not been much of a change in the reasons for showing up as unemployed.
Since the unemployment rate is the ratio of the number of people unemployed divided by the labor force (the number of people employed and unemployed), the unemployment rate can increase either because the numerator (the number unemployed) increased, or because the denominator (the labor force) decreased. Which one accounts for the 0.29 percentage point increase in the unemployment rate in August? According to the Household Survey, the number of unemployed rose by 514 thousand in August while employment rose 222 thousand. In other words, the labor force increased by 736 thousand. For August, the increase in the unemployment rate came about due to an increase in the number of individuals unemployed.
The figure below digs deeper into the labor market flows. The arrows reflect flows of people between employment (E), unemployment (U), and not-in-the-labor force (N). The change in employment is obtained by adding the numbers with arrows pointing into E, and subtracting the flows associated with arrows out of E: a net increase in employment of 146 thousand. This number is different from the 222 thousand obtained directly from the employment data from the Household Survey. The reason being that there are some additional inflows and outflows found in this table that have to do with adjustments to population, teenagers turning 16, etc. We can similarly compute the change in the number of unemployed by looking at the flows in and out of U: an increase of 512 thousand (rather closer to the actual change of 514 thousand obtained from the number unemployed with the adjustments). Relative to the flows in and out of unemployment, 512 thousand is not a huge number: the total flows (regardless of sign) sum to 6,180 thousand, and so 512 thousand is 8.3% of the total flows.
The charts below show that the number unemployed rose by 99 thousand due to an increased number of people out of the labor force moving into unemployment, by 75 thousand owing to a decrease in those transiting between unemployment and out of the labor force, by 175 thousand by virtue of more employed people becoming unemployed, and by 281 thousand as a result of fewer unemployed shifting into employment.
Job Openings and Labor Turnover Survey
The JOLTS data came out 8/29 and showed the number of job openings declined to 8.8 million in July from 9.2 million and 11.4 million in July of 2022. Having said that, the difference between the number of people unemployed and the available jobs are still much higher than any time pre-pandemic. The quit rate has come down somewhat, but, like the openings rate, still higher than its pre-pandemic level. One interpretation of the quit rate is that quitting and moving to better jobs helps one climb the job and income ladder. Said differently, quit rates fall during recessions as there are fewer opportunities to move. Layoffs remain very subdued as well. The rate of job hiring as fallen considerably over the past year or so and now back to the average rate since 2014 (excluding the pandemic).
Output, Income and Consumption
The second estimate for Q2 real GDP was released by the BEA on August 30, and showed a downward revision from 2.4% to 2.1%. Consumption was revised up from 1.6% to 1.7%.
While the downward revision in Q2 real GDP was not small, the monthly consumption data released on 8/30 by the BEA showed a large increase in consumption for July. Consumption expenditures increased 0.8% in current dollars (9.9% annualized) and 0.6% in chained 2012 dollars, the largest increase since January. The personal savings rate as a fraction of disposable income declined by nearly a full percentage point, from 4.3% to 3.5%
Takeaways
The data describe a growing economy with little, if any, signs of braking. Looking at the headline numbers and article titles, such as this in the 9/1 WSJ: “Job Gains Eased in Summer Months; Unemployment Increased in August,” might suggest a faltering labor market. However, a deeper dive into the underlying data suggests no such thing.
The BLS announced the employment situation for July. The establishment data showed a 187,000 increase in total nonfarm employment, 172,000 of which was in the private sector. Private service producing employment gained 154,000. Employment gains in May were revised down by 25,000 to 281,000 while June was revised down by 24,000 to 185,000.
Roughly 1/3 of July’s employment gains were in health care (63,000); the rest was fairly evenly distributed across sectors. There were a few declines in employment: nondurable goods, transportation and warehousing, information, to name a few, but the largest came in temporary help services that has seen eight out of the last nine months with a decline.
Average hours of work fell from 34.4 to 34.3 and combining that with the smallish increase in employment led to a fall in total hours of work. Average hourly earnings rose by $0.14 to $33.74
The household survey data from the BLS revealed a 268,000 increase in employment and 116,000 fewer people unemployed. There was almost no change in the labor force participation rate and the employment to population ratio increased slightly. The unemployment rate declined from 3.57% to 3.50%.
The Jobs Openings and Labor Turnover Summary showed almost no change in the rate of job openings, hires and separations. The number of job openings is still much higher than the number of people unemployed. There are roughly 1.64 job openings for each unemployed person.
The fairly weak recent jobs data does not provide much guidance as to how the Fed might respond. Had the reports been very strong it would have likely given reasons to continue to jack up the funds rate. Conversely had the reports been really weak, a pause would be likely. The decision will become clearer as the price data come in.
The BLS announced that payroll employment climbed 339,000 in May. The private sector added 283,000. The bulk of the gain was in the service sector, adding 257,000. The goods sector increased 26,000 but almost all of it, 25,000, in construction.
Although employment climbed 339,000, average weekly hours fell from 34.4 to 34.3 (a decline of 0.1%), throwing a little cold water on the overall report. As shown in the chart below, average weekly hours have trended down since late 2020. Hourly pay, however, climbed 0.3%, from $34.33 to $34.44, and the year over year increase was 4.30%; unfortunately, that growth is still a bit below the year-over-year CPI inflation rate for April, 4.96% (the May CPI has not yet been released).
The household data showed almost exactly the opposite from the establishment survey with an employment decline of 310,000. The employment to population ratio fell slightly from 60.4 to 60.3, and still falls below the pre-pandemic level of 61.1.
The unemployment rate is based on data from the household survey. As mentioned above, employment fell by 310,000 according to the household survey. Combined with a 440,000 increase in the number of unemployed persons, the unemployment rate rose from 3.39% to 3.65%. The changes in the number of employed and unemployed left the labor force participation rate unchanged at 62.6%.
To be “officially” classified as unemployed, an individual must have “actively” looked for a job and available to begin employment. This definition excludes those who are deemed “marginally attached” to the labor force who would like a job, but have not taken sufficiently active measures to find one. The chart below plots the headline unemployment rate along with a measure that includes marginally attached individuals as well as those employed part time for economic reasons (the “U-6” definition). Whereas the headline unemployment rate is 3.7%, the broader measure of unemployment stands at 6.7%. The gap between the two, 3.0%, is about as low as it has been since 1994 when the U-6 measure of the unemployment rate starts.
Until the early 1980s, female unemployment tended to exceed that of men; since then, the pattern has reversed. Since 2021, the male unemployment rate has exceeded that of women by 0.17 percentage points.
Note: We use the terminology of the BLS so as not to add any confusion, in particular, Sex and Race. Also, the BLS uses the terminology Race and Hispanic or Latino Ethnicity.
Historically, Black and African American unemployment rates have exceeded that of other racial groups. Since 1973 (when the data becomes available), the Black and African American unemployment rate has averaged 6.1 percentage points higher than that of whites. Over time, this gap has narrowed; since 2021, it has averaged 3.1 percentage points. Hispanic and Latino unemployment rates lie between that of Blacks/African Americans and whites. (Note that we have seasonally adjusted the Hispanic and Latino unemployment rates using Python’s ARIMA X11 package with default settings; officially seasonally adjusted series are not available.) Over the available data, the Hispanic/Latino unemployment rate exceeded that of whites by 3.15 percentage points; since 2021, by 1.5 points. The Asian unemployment rate is only available since 2003. On average, their unemployment rate is 0.55 percentage points lower than that of whites; since 2021, the gap is only 0.09 points.
We can further look at unemployment rates by sex and race, albeit for those 20 years of age and older. As mentioned earlier, since the early 1980s, for the population as a whole the male unemployment rate has exceeded that of women. While the same is generally true for Blacks/African Americans and whites, the average unemployment rate for Hispanic/Latino women is 0.95 percentage points higher than that of Hispanic/Latino men. Data for Asians is not broken down by sex.
People enter unemployment through various channels. The largest component is for people who lose their job, that represents about half of all of the unemployed. The next largest category is from those who reenter the labor force after a spell of being absent; these are labeled reentrants. Then there are those that voluntarily leave their jobs and those who are just entering the labor force.
Looking across those unemployed, average weeks of unemployment has been trending up somewhat over time. Between 1950 to 1980 average weeks of unemployment hovered between 10 and 15 weeks. Indeed, average weeks never hit 20 weeks until after 1980. Since that time average weeks have hit 20 or more numerous times and today stands at just over 21. The Great Recession and the pandemic had massive effects on weeks of unemployment.
Overall, the labor market continues its strong performance. While the unemployment rate increased it still remains as low as the economy has seen for decades.
We are not seeing a lot in this employment report to warrant any large changes in beliefs about the current stance of the labor market. The headline number in the Establishment Survey showed a gain of 311,000, solid, but not remarkable. There were gains in: (1) leisure and hospitality (105,000), (2) retail trade (50,000), (3) government (46,000, of which 37,000 is local government) and (4) health care (44,000). It also mentions losses in: (1) information (25,000), and (2) transportation and warehousing (22,000). It also notes that the information sector has shed 54,000 jobs since November of 2022. There were 25,000 jobs lost in the information sector in February, 9,000 of which were in the Motion Picture and Sound Recording Industry, and 3,000 were in Telecommunications.
Throwing a little cold water on the report were sizable downward revisions to the Establishment Survey employment gains for December (down 21,000 to 239,000) and January (down 13,000 to 504,000). The figure below gives a historical perspective on the first (initial) release, the second (revised) release, and the third (final) release.
In addition to the downward revisions, average weekly hours (private non-farm payroll) are down 0.1 hours, to 34.5. However, average weekly hours are still “high” by (recent) historical standards. Having said that, the combination of the rise in employment with the decline in average hours led to an overall decline in total hours of work by about 4 million, or 1%.
Average hourly earnings were up $0.08 and up about 4.6% year over year. However, CPI inflation continues to erode real average earnings.
The Household Survey showed that the number of people unemployed (up 242,000) and the unemployment rate (from 3.43% to 3.57%) rose. The labor force expanded by 419,000, moving the labor force participation rate to 62.5%. All groups except for teens have been trending up slightly since the end of the pandemic.
Overall, the labor market remains one of the strongest in recent memory. Not only is employment growing at a solid pace, the number of job vacancies has stayed substantially higher than the number of people unemployed and is unprecedented since these data began at the end of 2000. The relationship between vacancies and unemployment, known as the Beveridge Curve, has had a strange journey due to the pandemic. During the Great Recession the unemployment rate increased substantially as vacancies continued to decline. The “counterclockwise” pattern, standard in the search and matching framework, saw a reduction in the unemployment rate as vacancies began to increase. The unprecedented closures to business at the onset of the pandemic drove the unemployment rate to 15% even though vacancies did not decline substantially. Today, vacancies are near an all time high and unemployment near an all time low.
The BLS announced December employment on January 6 with another solid month that continues to show one of the strongest labor markets in recent history. Payroll employment increased 223,000 overall and 220,000 in the private sector.
The service sector provided the largest increase, 180,000. Temporary help services fell 35,000 after falling 30,300 and 22,300 in the previous two months. On the goods side, construction and durable goods employment came in strong up 28,000 and 24,000, respectively; although nondurable goods employment fell 16,000.
Average hours of work fell to 34.3 from 34.4. The increase in employment and decrease in average hours worked have opposing effects on total hours worked. In the event, the decline in average hours worked dominated as total hours of work dropped for the second straight month.
The household survey showed an increase in employment of 717,000, once again showing a marked difference from the establishment survey.
The labor force increased 439,000 leading to an increase in the participation rate to 62.3. Moreover, the number of unemployed persons fell by 278,000. These changes led to a fall in the unemployment rate to 3.5%.
Overall, the labor market continues to show considerable strength. Consequently, any discussion of a recession needs to focus on other parts of the economy.
