The Employment Situation for April – Decent Numbers, Cross Your Fingers

The Bureau of Labor Statistics (BLS) released the Employment Situation report for April today and the numbers are promising. In April total payrolls expanded by 165,000, with the private sector adding 176,000 and government subtracting 11,000. Homebuilding payrolls expanded by 13,300. The February and March payrolls were revised up by a total of 114,000.

The unemployment rate declined another tenth of a percentage point (technically 0.06%) from 7.6% to 7.5%, and this month for the right reason: more people found jobs. The household survey shows that in April the ranks of the employed rose by 293,000, enough to absorb the 83,000 decline in the number of unemployed persons as well as the 210,000 expansion of the labor force (technically not necessarily the same people). This is a refreshing change from last month when the decline in the unemployment rate was based on the labor force declining faster than the number of persons employed.

Analysts will be watching the next few months carefully to see if we avoid another one of the spring slowdowns that have rattled the last two years of the recovery. Indications are that the January 1 end of the 2% payroll tax holiday may be starting to restrain growth and the March 1 across-the-board spending cuts do not bode well. Our forecast is for a slowing of both employment and GDP growth from first quarter rates as the year unfolds before reaccelerating next year.

The next few months will provide a clearer picture.

 

The Employment Situation for March – Bad, But Homebuilding Shines

Last month the jobs report was mixed. Payroll growth was strong but the decline in the unemployment rate was too reliant on workers leaving the labor force. This month the report is bad. In March payroll employment increased by 88,000, roughly half of expectations, continuing the pattern of an economy that adds jobs in fits and starts. The unemployment rate declined another tenth in March to 7.6% but this was driven by 496,000 people dropping out of the labor force.

The labor force participation rate declined to 63.3% in March after averaging 66% in the years before the recession. The bulk of the declines in the labor force are among workers in their prime working years between the ages of 25 and 54. Labor force participation rates for workers age 55 and above have been flat or increasing.

One bad month doesn’t doom the prospects for the economic recovery (January and February were revised up by 61,000 jobs) but the seesaw nature of job growth we’ve seen over the last two years does put a cloud over the strength we’ve seen in the last few months. And as the year unfolds and the across the board government spending cuts known as the sequester begin to pinch the risks to the labor market are tilted to the downside.

One bright spot in the report was the homebuilding sector. Homebuilding payrolls increased by 14,800 in March. This brings the total number of homebuilding jobs added in the last six months to nearly 74,000. As the housing recovery has gained momentum since last year homebuilding is finally adding to rather than subtracting from economic growth. With plenty of recovery still ahead of us the homebuilding sector is expected to continue adding jobs and making a positive contribution to the broader economic recovery.

 

JOLTS: Rising Job Openings in Construction

Recent government employment data suggest a pickup in construction sector job openings over the last half year. While consistent with the uptick in construction sector activity, particularly in home building, the data reflect only modest increases in employment thus far.

For the construction sector, Job Openings and Labor Turnover Survey (JOLTS) data from the Bureau of Labor Statistics (BLS) indicate that hiring levels continue to be strong enough to create net jobs (hiring minus separations). Hiring in construction totaled 319,000 in January 2013. Hiring for the sector has exceed 300,000 per month for 22 of the last 24 months.

The number of open positions in the construction industry remained relatively high in the current report. At 98,000 open positions, the month of January had the second highest number of unfilled positions in the last 17 months. Successfully filling open positions with qualified workers is a top concern for home builders in 2013.

Measured as a three-month moving average, the openings rate (the blue line above) has been reflecting strength for the last six months. Combined with a declining sector layoff rate (nonseasonally adjusted), charted as a 12-month moving average in the graph above, these factors suggest good news for construction hiring in the months ahead.

Monthly employment data for February 2013 (the employment count data from the BLS establishment survey are published one month ahead of the JOLTS data) indicate that total employment in home building stands at 2.109 million, broken down as 578,000 builders and 1.531 million residential specialty trade contractors.

According to the BLS data, over the last 12 months, the home building sector has added only 64,000 jobs. Since the point of peak decline of home building employment, when total job losses for the industry stood at 1.466 million, 125,000 positions have been added to the residential construction sector.

An outstanding puzzle remains the fact that the increase in building has outpaced employment growth for the industry. This could be due to increased hours for existing workers, but if true, it is not a sustainable situation. Expected increases in building should lead to significant growth in home building employment in 2013.

For the economy as a whole, the December JOLTS data indicate that the hiring rate remained at 3.1% of total employment. The hiring rate has been in the 3.1% to 3.4% range since January 2011. The job openings rate was also relatively unchanged at a rate of 2.7% in January. The openings rate has now been in the 2.5% to 2.7% range for more than one year.

The Employment Situation for February – Mixed, But With Homebuilding on Top

The Bureau of Labor Statistics (BLS) released the Employment Situation report for February and the results look good but are more mixed than they look. The establishment survey shows payroll employment increased by 236,000, a decent number, but once again private sector payrolls increased (by 246,000) while the government sector continued to shrink (a loss of 10,000). The estimate for December was revised up by 23,000 while January was revised down 38,000, for a net loss of 15,000.

The household survey shows the unemployment rate dropped two tenths from 7.9% to 7.7%, but the decline was roughly a 60-40 split between people finding jobs and dropping out of the labor force.

The report was more unambiguously positive for the home building sector, adding 19,000 jobs in February and 56,000 since October with a four month string of 10,000+ gains.

So overall the payroll gains are bouncing up and down in a way that raises or lowers the monthly average depending on how far back you look and the unemployment rate in “trending” downward at too slow a pace and owes too much to declines in the labor force.

This mixed labor market report reflects other mixed signals in the economic data of late. On the negative side, fourth quarter GDP growth (+0.1%) was much weaker than both third quarter growth (3.1%) and what forecasters expected. On the positive side GDP growth is expected to rebound in the first quarter based on the transitory nature of the fourth quarter weakness (federal defense spending and inventory investment).

Also on the positive side, the Federal Reserve reported that household networth posted strong gains in the fourth quarter. Unfortunately now that house prices have stabilized (and begun to move up modestly) gains in household networth mainly reflect gains (and losses) in the stock market, and these gains are far less likely (than housing wealth gains) to underpin a strong rebound in consumer spending and more robust GDP growth.

So the employment report has some strengths and weaknesses and reflects a recovery treading water. Our forecast anticipates an acceleration in economic and labor market recovery as 2013 unfolds and today’s report shows we’re not quite there yet.

 

One Point in the HMI Eventually Means 37,000 Jobs

Every month, the NAHB/Wells Fargo Housing Market Index  (HMI) provides an overall measure of builder confidence in the strength of the single-family housing market.

Also every month, the U.S.  Bureau of Labor Statistics (BLS) produces estimates of employment in residential construction  (or at least it has since 2001, when it began to split jobs in the various trades into residential and non-residential categories, a move strongly endorsed by NAHB at the time).

Previous research has shown that the HMI has ability to predict single-family housing starts out to about 6 months in the future.  Now we can ask—is there any similar relationship between the HMI and the BLS measure of employment?

The answer is yes.  In fact, there is a positive correlation between the HMI and future residential employment.  The correlation is particularly strong (above .9) between the HMI and employment about 18 months in the future.  This tendency of the HMI to move in advance of employment is fairly evident in the following graph:

A substantial lag between a change in the HMI and employment seems reasonable, given that the HMI tends to move in advance of starts, and it usually takes awhile for a change in the starts rate to translate fully into a change in the number of homes under construction at any one time.

A simple statistical estimate based on the above data shows that a one point increase the HMI leads to an increase of about 18,700 jobs in residential construction 18 months later.   But the employment effects of home building are broad-based—supporting jobs not only in construction, but also in the industries that manufacture building products, transport and sell building products, and provide broker, legal, accounting, architectural, engineering, and other professional services to builders and buyers.

NAHB research has shown that, when a home is built, the number of jobs generated in these other industries is about the same as the number of construction jobs.  So, as a general rule, a one point change in the HMI leads to a change of 37,000 jobs one and a half years later—about half the jobs in construction, the other half in industries like manufacturing, trade, transportation and professional services.

Open Construction Jobs, But No Hiring Surge Yet

Despite the expansion of home building activity in 2012, construction sector employment growth remains positive if tepid, according to government statistics.

For the construction sector, Job Openings and Labor Turnover Survey (JOLTS) data from the Bureau of Labor Statistics (BLS) indicate that hiring levels continue to be strong enough to create net jobs (hiring minus separations). However, December hiring was notably weak,with the hiring total for the construction sector at only 287,000 positions, down from 380,000 in November.

While it seems likely that this low number will be revised up next month, December still marked the seventh consecutive month for which the three-month moving average of hiring remained above 300,000.

The number of open positions in the industry remained relatively high. At 92,000 open positions, the month of December had the second highest number of unfilled positions for 2012. Successfully filling open positions with qualified workers is a top concern for home builders going into 2013.

After benchmark revisions, monthly employment data for January 2013 (the employment count data from the BLS establishment survey are published one month ahead of the JOLTS data) indicate that total employment in home building stands at 2.091 million, broken down as 575,000 builders and 1.516 million residential specialty trade contractors.

According to the BLS data, over the last 12 months, the home building sector has added only 53,000 jobs. Since the point of peak decline of home building employment, when total job losses for the industry stood at 1.466 million, 107,000 positions have been added to the residential construction sector.

An outstanding puzzle remains the fact that the increase in building has outpaced employment growth for the industry. This could be due to increased hours for existing workers, but if true, it is not a sustainable situation. Expected increases in building should lead to significant growth in home building employment in 2013.

For the economy as a whole, the December JOLTS data indicate that the hiring rate dipped slightly to 3.1% of total employment from 3.3% in the previous month. The hiring rate has been in the 3.1% to 3.4% range since January 2011. The job openings rate was also relatively unchanged at a rate of 2.6% in December. The openings rate has now been in the 2.5% to 2.7% range for more than one year.

The ongoing weakness in hiring has several potential explanations. One, challenges in housing markets are preventing workers from relocating to labor markets with open positions. However, this “house lock” effect was recently challenged by a paper from economists at the New York Federal Reserve. A second possible explanation is a skills mismatch between available workers and open positions. This explanation is also hotly debated among various proponents of structural or cyclical explanations of post-Great Recession unemployment.

BLS Data Revision: Home Building Employment Up

New Bureau of Labor Statistics (BLS) data indicate that employment in the home building industry was stronger over the last two years than initial estimates suggested. 

We reported on the preliminary benchmark adjustment back in September. Due to the adjustment, the BLS estimates an additional 422,000 jobs were added to the economy as of March 2012. The revision occurs as the BLS annually supplements its estimates with more complete unemployment tax data.

Per the revised data, total employment in the home building sector (builders plus specialty trade contractors) was higher by 20,100 as of December 2012. 

 

Under the older, unrevised data, home building employment increased by 62,600 from the beginning of 2011 until the end of 2012. Under the revised BLS data, home building employment increased by 92,600 over the same period.

The net growth (20,100) from the revision differs from the 30,000 difference above because the revised data has total home building employment falling by 9,900 more lost jobs in 2010.

Under the new tally, home building employment is up 4.7% from the cycle low. Despite the uptick in the jobs estimate, an open question remains regarding the mismatch between the increase in housing construction and the relatively small increase in employment. Possible explanations include an increase in hours worked of existing workers, possible future upward employment revisions, or measurement error.

The Employment Situation for December – Gaining Strength? Not Really.

The Bureau of Labor Statistics (BLS) released the Employment Situation report for December on Friday. The establishment survey indicated payroll employment increased by 155,000 with private sector payrolls increasing by 168,000 and a loss of 13,000 in the government sector. Estimates for the prior two months were revised upward by a net of 14,000.

The household survey indicated the unemployment rate held steady at 7.8% in December after revising the November figure up to 7.8% from 7.7%, based on updated seasonal adjustment factors. The updated factors had little effect on the overall pattern in the unemployment rate for 2008 forward, the period covered by the revisions.

However, the stability in December’s unemployment rate did benefit from some favorable rounding. November’s unrounded rate was 7.753%, rounding up to 7.8%. December’s rate was 7.849%, rounding down to 7.8%. The labor force expanded by 192,000 persons in December, 28,000 of them employed, 164,000 of them unemployed. A swing of 2,000 from employed to unemployed would have pushed the unemployment rate to 7.9%.

December’s payroll gain of 155,000 was in line with the monthly average of 153,000 in 2012 and helped expand payrolls by just over 1.8 million for the year, only marginally lower than in 2011. So last month, last year and 2012 have come in consistently at a level too low to make rapid progress lowering the unemployment rate. In all of 2011 and 2012 the rate has come down just over one percentage point, from 9.0% to 7.8%. At this rate it will take the better part of 4 years to lower the unemployment rate to 6.0%, the high end of the range economists consider “normal.”

Unfortunately, this math is consistent with the Federal Reserve’s economic projections, which anticipate the unemployment rate will be between 6.0% and 6.6% by the end of 2015. A more robust (and not unrealistic) recovery would have job creation at twice this pace. With monetary policy arguably nearing the limits of its effectiveness and the tax rates part of the fiscal cliff behind us, let’s hope the remaining fiscal policy issues can be resolved in a way that adds to rather than subtracts from growth. The labor market, a broader economic recovery and the housing market all would benefit.

The Employment Situation for November – Still Positive, Still Weak

The Bureau of Labor Statistics (BLS) released the Employment Situation report for November noting that Hurricane Sandy did not affect the national employment and unemployment figures in today’s release. The establishment survey indicated payroll employment increased by 146,000 with private sector payrolls increasing by 147,000 and a loss of 1,000 in the government sector. Estimates for both September and October were revised downward by a total of 49,000. The household survey indicated the unemployment rate moved down to 7.7% from 7.9% in October.

The payroll numbers are indicative of a labor market treading water. They’ve been weaker in plenty of months over the last two years, but they are well below levels necessary to bring the unemployment rate down.

In a reversal of last month’s report, the decline in the unemployment rate is not as good as it looks. Last month the unemployment rate moved up based on an increase in the labor force that outpaced the increase in the number of employed persons. Adding jobs and an expanding labor force were positive gains, the increase in the unemployment rate was less important.

This month the decline in the unemployment rate is based on a decline in the labor force. The labor force shrank by the combined effect of 122,000 fewer persons employed and a decline of 229,000 in the number of persons previously classified as unemployed. Persons who want work, have looked for work in the prior 12 months, but not in the 4 weeks preceding the household survey are classified as marginally attached to the labor force and not included in counts of the unemployed or labor force. The decline in the unemployment rate wasn’t based on any real improvement in conditions.

Overall, the economy continues to add to payrolls but at a slower than robust pace. The unemployment rate is trending down since peaking in 2009, but the labor force has only recently regained the losses since the recession. We’re seeing signs of improvement but there is still plenty of ground to make up.

 

The Employment Situation for October – Continued Positive But Subpar Gains

The Employment Situation report for October released by the Bureau of Labor Statistics (BLS) Friday continued the recent pattern of positive but subpar gains in the labor market. The establishment survey reported payroll employment expanded by 171,000 based on an increase of 184,000 in private sector payrolls and a decline of 13,000 in the government sector. August and September estimates were revised up by a total of 134,000 for the two months. The household survey reported the unemployment rate ticked up to 7.9% from 7.8% in September.

The uptick in the unemployment rate is less threatening than it might appear. The BLS characterized the unemployment rate as “essentially unchanged” based on the statistical properties of the household survey, but a more encouraging perspective comes from the details of the calculation. The number of employed persons increased in October by 410,000, not as large as the 873,000 increase in September, but still a strong gain by this survey’s standards. The increase in the unemployment rate was the result of the larger 578,000 increase in the labor force. This increase follows the 418,000 increase in September. This combination of strong job growth and an expanding labor force outweigh the slight increase in the unemployment rate and indicate a recovering labor market. The BLS also reported that the number of discouraged workers declined by 154,000 from one year ago. Discouraged workers are those who are available and ready to work, but believe there are no jobs available for them.

Overall it appears that job growth has recovered from its spring lull and the unemployment rate has trended downward. The labor market is showing signs of recovery but at a painfully slow rate.