Tag: unemployment

Labor market stuff

Posted on by peter.c.rupert

by paul gomme and peter rupert

Employment

The BLS announced that December employment increased by 50,000, following November’s 56,000 (revised down from 64,000). October employment fell 173,000 after a 68,000 downward revision.

Despite the weak employment gains from the Establishment Survey, the unemployment rate ticked down from 4.54% in November to 4.38% in December. This fall in the unemployment rate is chiefly due to the number of unemployed persons falling from 7.8 million (November) to 7.5 million (December). This decline was large enough that the labor force fell (by 46 thousand). On its own, a drop in the labor force tends to push up the unemployment rate.

job openings and labor turnover survey (JOLTS)

According to the JOLTS data, there was very little movement in vacancies, hires or layoffs. The rates shown below are calculated by the variable in question divided by total employment or total employment plus openings. For example, if employment is 9.5 million and there are 0.5 million openings then the openings rate is 0.5/(9.5+0.5) = .05 = 5%. It is also useful to see the relationship between the level of unemployment and the level of openings. The number of unemployed persons fell by 278,000 in December, leaving 7.5 million unemployed persons, close to the number of job openings, 7.1 million.

Productivity and costs

Nonfarm business sector labor productivity increased 4.9% in the third quarter of 2025. Output increased 5.4% while hours worked increased only slightly, 0.5%. This led to a decline in unit labor costs of 1.9% as hourly compensation increased by 2.9% while productivity increased 4.9%.

Discussion

Despite the somewhat anemic employment numbers, other aspects of the labor market are doing well. Unemployment has fallen a bit, productivity is the highest we have seen in a couple of years. Firms continue to have vacant slots and, as can be seen in the JOLTS graphs above, tend to fall quite quickly at the onset of a recession. No sign of that yet. So, if you are searching for a reason to lower rates, this probably isn’t the best place to look.

Inflation and jobs

Posted on by Paul Gomme

We are finally seeing jobs numbers for October and November. The Bureau of Labor Statistics press release studiously failed to mention the loss of 105 thousand jobs in October — except to mention the 162 thousand fall in federal government employment. Perhaps this omission is a leftover from Trump having fired the previous head of the BLS after the BLS revised the May and June employment numbers down. With September employment revised down to 108 thousand (from 119 thousand), there was a scant 3,000 increase in employment over September and October. November delivered an anemic 64 thousand job gain.

As noted in the BLS press release, due to the Federal government shut down, the household survey for October was not collected. In the figures using household survey data, we have allocated half of the change from September to November to each of October and November (and omit the October figure to emphasize that this data is unavailable).

The unemployment rate is similarly missing for October 2025. The November unemployment rate rose to 4.56%, up from 4.44% in September. This is the highest unemployment rate in four years.

Overall, the employment numbers are fairly weak. Although average weekly hours rose from 34.2 to 34.3, so that total hours of work in the US rose. Moreover, firms continue to be opening jobs at a relatively high rate even though the hiring rate has been falling.

Inflation

There were two price index reports released, the September PCE and the November CPI. The September monthly (annualized) PCE rose slightly, from 3.14% to 3.27%. Our preferred trend measure rose from 2.70% to 2.89%. The Fed’s inflation measure of choice, the core PCE (PCEX) fell from 2.68% to 2.40% and our trend measure also fell, from 2.82% to 2.68%. While core PCE inflation is moving in the right direction, it is still above the FOMC’s 2% target.

Due to the federal government shutdown, October data for the Consumer Price Index was not collected. Below, the November CPI inflation rate is the average for the two months from September to November. The monthly annualized CPI rate for October November averaged 1.23%, down from 3.79% in September and our trend measure fell to 2.19% (October-November) from 3.38% in September. In the graphs below we have included the November number with dots. Annualized core CPI inflation was 0.92% in October-November while the trend measure was 1.94%.

Certainly good news on the inflation front: the last reading on the Fed’s preferred core PCE inflation measure moved down (albeit still above target) and the more timely CPI measures have continued downward, a trend that hopefully will soon be reflected in the PCE inflation measures. As inflation approaches target, the inflation hawks on the FOMC will have less reason to insist on keeping interest rates high. At the same time, the slow hiring in the labor market should allow some to argue more strongly for more rate cuts.

August employment not very August

Posted on by peter.c.rupert

by paul gomme and peter rupert

The Bureau of Labor Statistics (BLS) announced that the establishment survey showed that payroll employment was little changed, rising 22,000. In addition, June was revised down 27,000 and July up slightly, 6,000, for a net decline over the previous two months of 21,000. The government sector declined by 16,000.

The goods producing sector shed 25,000 and has declined in each of the last four months. Since July of 2000 employment in that sector has declined by about 3 million jobs. There has been a lot of research on what is known as the “China shock” that occurred when China entered the World Trade Organization (WTO) in 2001. Here is an article discussing some of the findings of the research.

Policy Outlook

At this stage, there is little doubt that the FOMC will cut the Fed funds rate at its upcoming September meeting. The big question is: How will markets respond? If the Fed is seen as capitulating to the White House, inflation expectations will rise, and so will market interest rates. However, those on the FOMC who are calling for a rate cut can make plausible arguments unrelated to any pressure from the White House. Our view is that inflation is still not under control and has been increasing of late and so cuts to the fed funds rate is premature.

July PCE inflation

Posted on by peter.c.rupert

by paul gomme and peter rupert

The BEA announced that inflation as measured by the annualized month-over-month change in the Personal Consumption Expenditure (PCE) price index fell from 3.49% (June) to 2.40% (July) on an annualized basis. Our corresponding measure of trend inflation also fell, from 2.63% to 2.55%. However, the annual (year-over-year) measure rose slightly, from 2.56% to 2.60%.

As is well known, the FOMC concentrates more on core PCE inflation (that is, excluding the “volatile” food and energy components). Core inflation rose across the three measures we regularly report. The annualized month-over-month rate rose from 3.20% to 3.33%; the year-over-year from 2.77% to 2.88%; and our measure of trend from 2.80% to 2.98%.

The PCE inflation results were foreshadowed by the earlier CPI release.

Earlier this week, the BEA also released its second estimate for quarter 2 Gross Domestic Product. In brief, output growth was revised up from 3% to 3.3%.

Policy Outlook

We’ll organize our discussion of the policy outlook around the Taylor rule which prescribes setting the FOMC’s policy rate, the Federal funds rate, based on: (1) the “neutral” Fed funds rate, given by the sum of the real interest rate and the inflation rate; (2) how much the inflation rate exceeds target; and (3) some measure of real activity like the output gap (potential output less actual) or the unemployment rate gap (the actual unemployment rate less its natural rate). (For those wishing to play around with different scenarios, the Atlanta Fed has a web page for that.)

While in theory each of these components is well defined, in practice they are not. Start with inflation. Measuring inflation seems pretty straightforward, particularly since the FOMC has stated its preference for core PCE inflation. At what horizon should inflation be measured? As we’ve harped on in the past, the month-over-month rate is too volatile while the year-over-year rate takes a long time to capture changes in trend. Suppose that the FOMC uses something conceptually similar to our measure of trend inflation. We still face the problem of accounting for transitory phenomena like Trump’s tariffs. Some folks (including some members of the FOMC) argue that these tariffs have pushed up the price level without changing the underlying trend. As a result, measured inflation will be higher, but this does not reflect a change in trend. As always, the devil is in the details: How much of current inflation is due to these transitory factors?

Next, measuring gaps is hard and subject to measurement error. The output gap requires knowing potential output which is the level of aggregate output that the economy could produce with current resources (labor force, capital, etc.) used at typical intensities. Similarly, the unemployment rate gap depends on the natural rate of unemployment: the rate that would prevail in the long run absent shocks. Both potential output and the natural rate of unemployment need to be estimated and so are subject to uncertainty. Further, the current environment is sending mixed signals regarding the real side of the economy. Output growth for the second quarter is humming along quite nicely, but this growth comes on the heels of a disappointing first quarter. The revised job creation data suggest an anemic labor market, but the unemployment rate is still low.

Finally, the neutral Fed funds rate suffers not only from the inflation issues discussed above, but also problems in measuring the real interest rate. The problem for those arguing that the current Fed funds rate is too restrictive — meaning that it’s above its neutral rate — is that we don’t really know that neutral rate.

Those advocating cuts to the Fed funds rate argue some combination of: (1) monetary policy is too tight: the Fed funds rate is well above its neutral level; (2) while inflation is above target, this is due to transitory factors like Trump’s tariffs; and (3) the real side of the economy is weak as evidenced by the job creation numbers.

The case for no change is built on: inflation is too high (and increasing of late) and therefore a restrictive monetary policy is appropriate, and there are mixed signals from the real side of the economy.

The political pressure being applied to the FOMC adds yet another complication. To grasp the nature of this problem, keep in mind that the Fed controls one interest rate: the Federal funds rate which is an overnight rate relevant to banks. The following discussion also makes use of the Fisher equation which states that the nominal interest rate is the sum of the real interest rate and expected inflation. Given that inflation is above target, the risk of cutting the Fed funds rate is that market participants may view the Fed as caving to political pressures to lower interest rates. In turn, market participants may well question the Fed’s credibility and its commitment to low, stable inflation. As a result we would expect a rise in inflation expectations. Then, via the Fisher equation, such an increase in expected inflation will lead to a rise in market interest rates in order to compensate investors for the higher inflation they anticipate. Paradoxically, the political pressures on the Fed make it important for the Fed to keep the current level of the Fed funds rate in order to maintain the Fed’s political independence and credibility. No one wants to be painted as the second coming of Arthur Burns. Here is a fascinating podcast describing how Arthur Burns capitulated to Richard Nixon, bringing about the worst inflationary episodes in recent U.S. history.

June Employment Report

Posted on by Paul Gomme

According to the BLS Employment Survey, the U.S. economy added another 147 thousand jobs in June — a very respectable number. Although the private sector saw a weak employment increase of 74 thousand.

The BLS noted gains in the government sector (gaining 73 thousand jobs, despite a reduction of 7 thousand at the Federal level) and health care (up 39 thousand jobs).

Average hours of work fell to 34.2 from 34.3 and has been oscillating between the two for several months.

From the Household Survey in the same BLS release, the unemployment rate dipped from 4.24% in May to 4.12% in June.

One dark spot in the employment outlook is that continuing unemployment insurance claims have risen in June. This increase may reflect increased difficulty of the unemployed to find suitable jobs.

JOLTS (Job Openings and Labor Turnover Survey) allows for a deeper dive into the data; this data was released on July 1 and includes data for May but not June. It continues to be the case that there are more available jobs than folks classified as “unemployed” (actively seeking a job). Of course, aggregate measures like these say nothing about the match between skills needed for open jobs, and the skills of the unemployed.

As the job openings rate has fallen since 2022, so has the hiring rate and the quit rate. Since JOLTS is a relatively new survey, it covers a span of time with very few complete business cycles. Consequently, it’s difficult to say what typcally happends to the JOLTS rates at the oneset of a recession. That said, around a recession as the labor market tightens we would expect to see a fall in the quit, openings and hiring rates, and a rise in the layoff rate. Thus far in 2025, it is hard to see any such changes.

While there were some spots of concern, the labor market shows little signs of weakening. Indeed the strength of the June report gives amunition to those on the FOMC advocating for no action at its July meeting.

May Jobs Report

Posted on by Paul Gomme

The Bureau of Labor Statistics (BLS) reported another month of solid job gains for the U.S. economy. According to the Establishment Survey, the U.S. added 139 thousand new jobs. Oddly, the Household Survey recorded a loss of 696 thousand jobs. Historically, it’s not unusual for these two surveys to give much different readings on the job situation.

The government sector lost around a thousand jobs owing to 22 thousand fewer jobs at the federal level.

The goods sector dropped 5 thousand jobs with the manufacturing component falling 8 thousand. The service sector added 145 thousand.

While the BLS report stated that the unemployment rate was unchanged at 4.2%, the unemployment rate actually ticked up slightly, from 4.19% in April to 4.24% in May. Moreover, it continues to trend up from the extremely low rates in 2022-2023. Note that the unemployment rate is still quite low compared to its long term average.

The Job Openings and Labor Turnover Summary was released on June 3 and showed that the number of job openings was little changed at 7.4 million. There are roughly the same number of job openings as unemployed person.

Solid February Employment Report

Posted on by Paul Gomme

The Bureau of Labor Statistics Establishment Survey recorded an increase in employment of 151 thousand for February. This increase is only slightly below the average for the previous 12 months. Another way to think about the February number: it exceeds 6 of the previous 12 month employment gains.

While government employment rose by 11 thousand jobs in February, federal government employment dropped by 10 thousand.

The household survey from the BLS press release indicated a decline in the labor force participation rate (62.6% to 62.4%) and an employment-to-population ratio decline (60.1% to 59.9%). The report showed a slight increase in the unemployment rate, from 4.01% in January to 4.14% in February. For the most part, the unemployment rate has hovered around 4.1% for the last 8 months.

Although the unemployment rate has been trending up over the past year or so, keep in mind that it is, historically, quite low.

Q4 GDP, Inflation and Claims

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

2024 ended on a strong note as the BEA announced that real GDP increased 2.4% on a seasonally adjusted annual rate, lower than the very strong previous two quarters, but still above the long term trend. Over the year, GDP increased 2.8% following a 2.9% increase in 2023.

Personal consumption expenditures led the way, increasing 4.2%. Investment went the opposite direction, declining 5.6%.

One useful way to look at this data is to decompose the growth in output into contributions by its constituent parts. By way of example, the contribution of consumption, 2.9%, is given by the growth rate of consumption (4.2% in 2024Q4) weighted by the share of consumption (69%). Comparing across the third and fourth quarters, one can see that the contribuiton of consumption rose, from 2.5 percentage points to 2.9 points while that of investment fell from 0.1 points to -1.0 points. At the same time, the contribution of exports went from 1.1 points in the third quarter to a drag of 0.1 points in the fourth; in contrast, imports were exerted a 1.7 point drag in the third quarter but contributed a positive 0.1 points in the fourth.

The PCE price index was released today and, much like the CPI released earlier this month, delivered mixed signals. Inflation as measured by the PCE price index jumped to its highest level since April of 2024, increasing 3.11% on a seasonally adjusted annualized basis. Removing the highly volatile food and energy categories, the increase was only 1.89%, the second consecutive month below the FOMC’s 2.0% target. Our preferred trend measure revealed a similar pattern, with the PCE trend rising 2.36% (highest since last April) but the PCE core measure fell to its lowest level since December of 2023, 2.17%.

The Department of Labor released weekly initial claims for unemployment, falling 16,000 to 207,000, indicating that the labor market continues a strong performance.

Are we there yet?

We all know that the Fed looks at core PCE inflation. Less clear is whether they look at the month-to-month inflation rate, or year-over-year rate. Over the past three months, our trend measure has moved down towards the Fed’s 2% target, but: the same could be said of June to August of 2024, and our trend measure is still above target. There is still (some) work to be done on the inflation front. Fortunately, the real side of the economy continues its strong showing. Earlier this week the FOMC decided to keep rates as they were:

Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent.

Job Market Remains Strong

Posted on by Paul Gomme

As reported by the Bureau of Labor Statistics (BLS), according to the Establishment Survey, nonfarm payroll employment rose by 256 thousand jobs in December — well in excess of expectations of 165 thousand new jobs reported by Bloomberg. The BLS noted that December’s job gains exceeded the average monthly gain for 2024 of 186 thousand.

Sectors receiving particular attention by the BLS were: health care added 46 thousand jobs in December (lower than the average of 57 thousand jobs per month in 2024), government gained 33 thousand jobs (down from the 2024 average of 37 thousand), social assistance was up 23 thousand (compared to an average of18 thousand per month in 2024), and retail trade accrued 43 thousand additional jobs in December after losing 29 thousand jobs in November (for the year, retail trade was essentially unchanged).

The household survey showed an increase in employment of 478,000 and a decrease in unemployed persons of 235,000. The employment to population ratio increased to 60% and the participation remained at 62.5%. The unemployment rate fell from 4.23% to 4.09%.

Although the overall labor force participation rate is still much lower than its peak in the late 1990’s, the rate for prime-age workers is close to it’s all-time high.

With a decline in the number of unemployed persons and a recent increase in job openings, we continue to see more openings than persons searching for jobs, meaning jobs are, in some sense, plentiful.

These stronger than expected labor market gains cast more doubt on the potential for future declines in the Fed Funds rate, as indicated in their December 18 announcement:

In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.

Indeed, if the next inflation report shows no real progress in moving toward the 2% target, it is quite likely, in our view, that the Fed should take a pause while they wait for more incoming signals.

Hot September Employment

Posted on by peter.c.rupert

By Paul gomme and Peter Rupert

The BLS announced that payroll employment increased 254,000 in September (plus 72,000 in upward revisions over the previous two months), solidly beating the “forecasts” that hovered around 150,000. Before the report many had talked about the slowing of the labor market, such as this from CNBC:

September’s jobs picture is expected to look a lot like August’s — a gradual slowdown in hiring from earlier this year, a modest increase in wages and a labor market that is looking a lot like many policymakers had hoped it would.

Well, looks like policy makers didn’t get what they hoped for! In fact it looks more like a gradual increase in hiring over the past four months. The private sector led the charge, increasing 223,000, the second highest reading since May of 2023.

Private sector service jobs increased 202,000 with health services and social assistance rising 71,700 and leisure and hospitality jumping up 78,000, the highest since January, 2023. Declines were seen in manufacturing of both durable goods, down 3,000 and non-durable goods down 4,000.

Average hours of work fell from 34.3 to 34.2, so that total hours of work fell 1.5%. Average hourly earnings climbed to $35.36 from $35.23. The growth in hourly earnings continues to outpace CPI inflation, meaning real wages are rising.

The household survey shows an employment increase of 430,000 and the number of unemployed persons fell 281,000. The labor force increased 150,000. The unemployment rate declined from 4.22% to 4.05%. Curiously, in its press release, the Bureau of Labor Statistics said that the unemployment rate was little changed between August and September.

Earlier this week, the Job Openings and Labor Turnover Survey (JOLTS) was released and showed little change in job openings, hires and separations. There are still more job openings than the number of unemployed persons.

Overall, the labor market continues to defy the press who seem to be constantly trying to show the economy is softening. No signs here. What will this do to the outlook for the Fed’s next steps? The labor market is also at odds with the Fed, at least in terms of their last statement,

Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.

Looking at the very first graph on this post, one can see that job gains have been increasing over the past several months and the unemployment rate actually fell this month. With the strong GDP numbers and this strong labor market outcome it may shift the thinking that inflation pressures could/might/will be increasing. Was the recent 50bp cut too much too soon?