Tag: unemployment rate

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?

August Employment Report

Posted on by Paul Gomme

On September 6, the Bureau of Labor Statistics released its employment report for August. According to the Establishment Survey, the US economy added 142 thousand jobs in August. In addition, the previous two months were revised down, -61 in June and -25 in July. The Household Survey put the gain at 168 thousand jobs.

From the Establishment Survey, the leisure and hospitality sector added 46 thousand jobs; construction 34 thousand jobs; and health care 30 thousand jobs. Sectors losing jobs were led by manufacturing (24 thousand) and retail trade (11 thousand).

Average weekly hours rose from 34.2 to 34.3 so that total hours of work increased by 4.7%. Average hourly earnings increased 0.4%, from $35.07 to $35.21.

The unemployment rate, derived from the Household Survey, fell marginally, from 4.25% to 4.22%. (The headline numbers are touting a decline from 4.3% to 4.2%.) However, a broader measure of the unemployment rate which includes marginally attached individuals rose between July and August, from 7.8% to 7.9%.

Policy Implications

Is strength or weakness in the eye of the beholder? Or rather, in the data of the beholder?

Given the signaling from members of the FOMC, it’s pretty clear that the committee will lower the Federal funds rate at its next meeting later in September. Speculation is growing that the committee may deliver a 50 basis point reduction rather that `just’ a 25 point reduction. The case for a more aggressive loosening of monetary policy lies on the real side of the economy. Where does this weak real side show up? Maybe in the employment numbers reported above. Yet, the same report shows a slight decline in the unemployment rate and a 48 thousand decline in the number unemployed. The labor force increased by 120 thousand. As mentioned above, wage growth was fairly strong and total hours increased substantially. Second quarter real GDP growth was revised up from 2.8% to 3.0%. Considering that US population growth is running around 0.5% per year, real per capita output growth for the second quarter is around 2.5% which is well above its long run average. Meanwhile, while PCE inflation has fallen, it is still a bit above the FOMC’s 2% target.

July Employment Report

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced that employment rose by a very subdued 114,000 according to the establishment survey, 97,000 of which came from the private sector. The bulk of the increase came from Health Care and Social Assistance sector, increasing 64,000. Moreover, there were 29,000 fewer employees over the past two months than reported earlier, as May was revised down 2,000 and June revised down 27,000.

Average hours of work fell from 34.3 to 34.2. Given the weak increase in private sector employment and the decline in average hours meant that total hours of work fell about 2.6%.

To be sure, the July employment report is disappointing. The figure below plots the change in nonfarm payroll employment since 1947. To this figure, we’ve added a red dot when the change in employment was at most 114,000 (as in the most recent jobs report), and the economy was in an expansion. (We’ve excluded a few months around the start of the pandemic because these employment changes were so extreme.) The bottom line is that the US has often had weak job reports in the midst of expansions. The point being that looking only at one monthly report may be very misleading. Indeed the Fed has mentioned this in other contexts:

The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

July 31 FOMC Statement

The unemployment rate, based on the household survey, rose to 4.25% from 4.05% in the previous month. Digging deeper into the unemployment data reveals that much of the increase in the unemployment rate in 2024 has been due to a combination of workers losing jobs, and workers reentering the labor market, the labor force grew by 420,000. Keep in mind that reentry may be an artifact of the rules for counting an individual as unemployed which includes a notion of active job search. According to the jobs report, in July there were 4.6 million individuals who were not in the labor force but who want a job, an increase of 346,000. When these marginally attached individuals are included in the ranks of the unemployed, the unemployment rate is nearly 8%, not the official 4.3%.

Once again there are many in the media showing the possibility that the economy is heading toward a recession. Note: definitionally, it has to be true that if we are currently not in a recession we are heading toward one since recessions do frequently occur (but have become much less frequent, see the recessions graph below. At any one time there are usually both positive and negative signs. For example, how much weight should one put on a one month decline? Or a one day decline in the stock market? Jeremy Piger uses data to infer the probability the economy is in a recession, as of July 26, the probability that we were in a recession in June was 0.26%. That said, there will be inflation reports before the next FOMC meeting, but at this point it looks more likely there will be a rate cut in September, barring any large increases in inflation.

Q2 GDP and June PCE

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

On July 25 the BEA announced that the advance estimate of real GDP increased 2.8% in Q2 on an annualized basis. The gains were fairly widespread, except for residential and non-residential structures, that fell 1.4% and 3.3%, respectively. Personal consumption expenditures, PCE, increased 2.3% and was the largest contributor to overall growth, at 1.57 percentage points.

PCE price index

On July 26, the BEA announced that the personal consumption expenditures, PCE, price index increased 0.95% on an annualized basis. Our preferred trend measure came in at 1.9%.

The Fed’s preferred measure, the PCE ex food and energy came in at 2.2% on an annualized basis while our trend measure came in at 2.6% and has continued to fall for the last 5 months.

As we have mentioned many times before, we believe our trend measure better captures the path of inflation and, more importantly, implications for Fed policy. For example, the annualized monthly change was higher in June, 2.2%, than in May, 1.5%. It seems pretty obvious that the Fed will not change its current stance on policy given this one month blip.

Policy Discussion

No doubt, there will be a lot of chatter about whether the FOMC should lower the Fed funds rate at its July 30-31 meeting, or wait until September. Or something else. To wade through all this, it helps to have a framework to organize thoughts about the incoming data. Arguably, the so-called Taylor rule has the broadest acceptance in the economics-policy profession. Briefly, the Taylor rule says that the Federal funds rate should be set as: (a) the natural real interest rate plus (b) the target inflation rate (2%) with (c) an upward adjustment when actual inflation exceeds target and (d) a downward adjustment reflecting slack on the real side of the economy. Typically, this slack is measured by either the output gap, or the unemployment rate gap. It’s easiest to understand why one of these gaps is included in the Taylor rule by thinking about what happens when there’s a negative gap. In the case of the unemployment rate, the idea is the demand for labor is high. Consequently, either firms will have to offer higher wages, or workers have more bargaining power and can command higher wages. Either way, these nominal wage channels put upward pressure on prices through some sort of “cost push” channel. This could be as simple as firms pricing using a constant markup over their (marginal) costs. In the case of a negative output gap, the story is that demand is outstripping supply, and firms find it easier to raise their prices. Returning to the Taylor rule, the idea is that these gaps reflect future inflationary pressures, and that the FOMC should respond now to head off future inflation.

There’s a lot of wiggle room in the Taylor rule. First, one needs an estimate of the natural real interest rate. The Atlanta Fed’s Taylor rule calculator provides eight (8!) choices for the real interest rate, currently ranging from 0.7% to 2.5%. That said, a given measure of the real interest rate does not change much over time.

Second, how to think about the deviation of inflation from target? As mentioned above, we like our trend measure which has moved down in 2024. The Taylor rule would, then, prescribe a lower Fed funds rate. But that prescription depends on the FOMC having religiously followed the Taylor rule over the past few years — which it almost certainly hasn’t. Nonetheless, some commentators may suggest that it’s time to start lowing the Fed funds rate since PCE inflation has come down in 2024.

Third, how to measure real-side slack? The output gap is given by potential output less actual output. The problem here is the nebulous concept of “potential” output. The fact that FRED has a potential GDP series is of no comfort. (“Fake data!”) To be absolutely clear, the output gap is a made-up number. Similarly, the unemployment rate gap is the difference between the “natural unemployment rate” and the actual unemployment rate. Some may substitute NAIRU (the non-accelerating inflation rate of unemployment) for natural unemployment rate, but it’s the same basic idea. As with the output gap, there’s the problem of measuring the natural unemployment rate. (“More fake data!”) Between the output gap and the unemployment rate gap, the Atlanta Fed provides 18 (yes, 18!) measures of real-side slack. What’s does the Taylor rule say should be happening with the Fed funds rate based on recent real-side data? Currently, estimates of the output gap are positive: there’s slack in the economy which tends to push down the Taylor rule’s prescription for the Fed funds rate. The strong growth in the second quarter is likely to cut the size of this gap (unless of course, potential output is revised!) which calls for a higher Fed funds rate. On the other hand, the unemployment rate has increased, and so the unemployment rate gap has increased which, through the Taylor rule, would call for a lower Fed funds rate.

TLDR: Inflation is coming down; the Taylor rule dictates a lower Fed funds rate. The output gap has narrowed; raise the Fed funds rate. The unemployment gap increased; lower the Fed funds rate.

So, here is the rub, even with the most widely used model at hand, it offers little guidance as to what to do next. Indeed, there is way too much wiggle room to come to a coherent and consistent policy recommendation.

June employment

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced that employment in June rose 206,000, about 1/3 of that came from government employment. Downward revisions to the earlier months totaled 111,000.

The service sector saw a 117,000 increase with the health care and social assistance sector increasing 82,400; however the largest decline in the service sector came from temporary help services, falling 48,900 and has been in decline for a over the past year and a half or so.

Average hours of work remained steady at 34.3 and with the 136,000 private sector increase in employment meant only a small increase in total hours of work.

The household survey shows a 116,000 increase in employment. 277,000 more people entered the labor force and the number of unemployed persons increased 162,000. These changes led to an increase in the unemployment rate from 3.96% to 4.05%.

Policy Chatter

The labor market continues to run strong, despite the recent mediocre showing although the unemployment has risen slightly to 4.05%. Inflation has trended down and, depending on the particular measure, is not a great cause for concern. Some are calling for an interest rate cut my the Fed. Indeed, Mark Zandi, Chief Economist at Moody’s, has said that the Fed should lower interest rates since the Fed “has hit their objective.” If they have hit their objective of full employment and low inflation, does it seem reasonable to be lowering, or raising rates, at this time. He does continue by saying that maybe the equilibrium interest rate for the economy could be higher, but he says it is not 5.5%. Obviously this is an issue that the Fed will be dealing with in the near future.

May Employment Report

Posted on by Paul Gomme

By Paul Gomme and Peter Rupert

The BLS reported 272 thousand new jobs according to its Establishment Survey, easily beating economists’ expectations of 190 thousand reported by Bloomberg. The job gains for May exceed the average for the previous 12 months, 232 thousand. Job gains for March were revised down 5 thousand while those for April were revised down 10 thousand.

In contrast, the Household Survey indicates that the economy lost 408 thousand jobs in May. Indeed, 5 out of the last 8 months have seen the two surveys going in opposite directions.

The BLS also reported that the unemployment rate rose slightly, from 3.86% to 3.96% in May.

Meanwhile, the labor force participation rate dropped slightly, from 62.7% to 62.5%.

Average hours of work remained at 34.3 and private employment rose 229 thousand, leading to a 2.1% increase in total hours of work. Average hourly earnings climbed $0.14 and continue to lie above year over year inflation, thereby increasing real wages.

While the headline employment numbers come from the establishment survey, the labor force participation rate is calculated from a household survey, and is calculated by the number of people unemployed plus the number of people employed relative to the age 16 and over non-institutional population. Since the labor force participation rate fell, it follows that the sum of employed and unemployed people must have fallen. We also know that the number of people unemployed rose from 6.5 million to 6.65 million. Consequently, for the sum of employed and unemployed people to fall, it must be that the number of people employed fell. And that’s exactly what the Household Survey tells us. But not the Establishment Survey.

Overall, the labor market shows continued strength and will make the Fed’s decision a little more difficult. Inflation is still above the 2.0% target and with the strong economy there seems little reason to lower the rate at the next meeting. However, as we discussed above, reading the labor market is not as easy as first appears.

Economic Week in Review

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

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.

July Employment Update

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

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.

February Employment Stays Strong

Posted on by Peter Rupert

by: Zach Bethune, Thomas Cooley, Peter Rupert

According to the Bureau of Labor Statistics establishment survey, employment increased 295,000 from January to February and has increased by about 3.3 million since February 2014. January employment was revised down slightly by 18,000 and December had no revision.  This continues the trend of strong employment growth consistent with an an ongoing robust recovery.  The unemployment rate fell further to 5.5% average weekly hours were flat and average hourly earnings rose only slightly. 

empchgm-2015-03-06

Job gains were robust, only mining and logging, non-durable goods, and temporary help services saw small declines. Is the decline in temporary help services, for the second month in a row,  a signal of underlying strength in that firms are relying more on full-time workers rather than temps?  Maybe, but, as the chart below shows, as a fraction of total employment, firms use temp help much less during downturns.  Moreover, the use of temp services has doubled relative to total employment since the early 1990’s.

temps-2015-03-06

Average weekly hours have remained fixed at 34.6 for the past 5 months after being stuck at 34.5 for the previous 7 months. Average hourly earnings rose only slightly from $24.75 to $24.78.

avghours-2015-03-06

While the establishment survey provided solid numbers, the household survey provided some mixed messages. True, the unemployment rate fell from 5.7% to 5.5%.

unrate-2015-03-06

But the labor force fell by 178,000 leading to a decline in labor force participation from 62.9 to 62.8 and no change in the employment to population ratio at 59.3.

lfp-2015-03-06

epr-2015-03-06

The number of persons working part time for economic reasons fell by 175,000, with 165,000 fewer reporting slack work reasons. The number of persons reporting part time for non-economic reasons increased by 15,000.

parttimefrac-2015-03-06

All of this seems to provide further support for the view that the Fed should begin normalizing monetary policy sooner rather than later. Although recent communications have emphasized the view that they could be “patient,” we expect that language to disappear. The graphs below show the continued strength in the labor market, albeit slower than coming out of previous recessions.

emp-rec-rec-2015-03-06

unemp-rec-rec-2015-03-06

Strong January Employment Report

Posted on by Peter Rupert

by: Zach Bethune, Thomas Cooley, Peter Rupert

The Bureau of Labor Statistics release of the January jobs report shows continued strength in the labor market, with total nonfarm employment rising 257,000. Moreover, the current increase, along with revisions over the past two months show employment growth averaging 336,000 over the past three months. The revision to November, up to 423,000, was the largest monthly increase since May of 2010.

empchgm-2015-02-06

In addition to the usual monthly revisions, the BLS also undertook annual re-benchmarking:

With the release of January 2015 data on February 6, 2015, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments. Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking. Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.

For those data geeks wanting to know more about benchmark revisions, here is the full article from the BLS. Summarizing that article, “The March 2014 benchmark level for total nonfarm employment is 137,214,000; this figure is 67,000 above the sample-based estimate for March 2014, an adjustment of less than 0.05 percent.” The BLS then uses the re-benchmarked data to revise the rest of the year, “From April 2014 to December 2014, the net birth/death model cumulatively added 968,000, compared with 841,000 in the previously published April to December employment estimates.”

Employment gains were robust, the only major sector to shed jobs was the Government sector, losing 10,000, meaning that Private sector jobs increased by 267,000.

Average weekly hours, however, have shown no change over the past 3 months, stuck at 34.6.
avghours-2015-02-06

Average hourly earnings ticked up slightly to $24.75, and growth has averaged about 2% per year since 2010, but with CPI inflation running below 2% of late means real hourly earnings are growing, albeit modestly.

ahecpi-2015-02-06

While the strong report certainly keeps the Fed on a steady *normalization* pace, there are still areas in the labor market that, if not troublesome, remain nagging issues. While the employment to population took a nose dive during the great recession…and is still quite low relative to its all-time (at least since WWII) peak…

epr-2015-02-06

…however, if one zooms in, there has been a steady increase over the past year and a half or so…

epr2-2015-02-06

Another somewhat nagging issue is the fate of the long term unemployed. Indeed, the number of those unemployed 27 weeks or longer actually rose in January, from 2.785 million to 2.80 million persons. The percent of the unemployed who are unemployed 27 weeks or longer has been bouncing between 31% and 32% for the last six months or so….
udur27a-2015-02-06The number of persons employed part time for economic reasons (or involuntary part-time workers) also didn’t improve in January. There remains 6.8 million individuals who would like to be working full time but couldn’t because the were unable to find full time work or had their hours cut back.

pter-2015-02-06

The rate at which these workers are transitioning into full time continues to show no improvement…rate-pter-fter-2015-02-06

…and their wages are declining relative to full time workers.
wage-ratio-2015-02-06It is no surprise that, despite a low 5.7% unemployment rate since October, there is still concern about the health of the labor market.