The Employment Situation for May – A Milestone of Sorts

June 6, 2014

With the May numbers reported today payroll employment has officially surpassed the pre-recession peak of 138.365 million, by 98 thousand.

The Bureau of Labor Statistics (BLS) released the Employment Situation report for May. The establishment survey showed payroll employment expanded by 217,000. The April figure was revised down by 6,000 and the March figure was unchanged.

From the household survey, the unemployment rate held at 6.3%, but the addition of 192,000 to the labor force put some welcome upward pressure on the rate. That’s a good thing. Most analysts agree the unemployment rate overstates the health of the labor market because the labor force participation rate has declined significantly since the recession began and has yet to recover. The Federal Reserve abandoned the 6.5% threshold for the federal funds rate in recognition of this disconnect.

At this point a very positive (and much anticipated) labor market development would be for payrolls to continue expanding at a pace of at least 200,000 per month and the unemployment rate to hover at the current level (if not increase) as discouraged workers return to the labor force.

Passing the pre-recession peak is an accomplishment but with a depressed participation rate and still elevated levels of long term unemployment and under-employment there is still plenty of room for improvement.

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The Employment Situation for April – Unemployment Rate 6.3% – It’s Not What You Think

May 4, 2014

The unemployment rate plunged to 6.3% in April from 6.7% in March. But curb your enthusiasm, it’s not what you think. First, the numbers.

The Bureau of Labor Statistics (BLS) released the Employment Situation report for April. The establishment survey showed payroll employment expanded by 288,000, and February and March were revised upward for a combined increase of 36,000.

The gains were broad based. Residential construction added 13,100 jobs, bringing the total number of jobs added since the beginning of 2012 when the housing recovery began in earnest above 200,000.

From the household survey, the unemployment rate dropped to 6.3% from 6.7% in March. But as has frequently been the case in this recovery, the decline was not due to an increase in the number of employed persons, but from a decline in the labor force. The number of employed persons actually declined by 73,000, but this loss was overwhelmed by a decline in the labor force of 806,000. If the labor force didn’t shrink and the 73,000 job losers were counted as unemployed, the unemployment rate would have risen to 6.8% instead of declining to 6.3%.

So the labor report is mixed, and context is important. The 288,000 addition to payrolls is definitely encouraging. Payrolls are now “only” 113,000 below their January 2008 peak and likely to surpass that mark in the next month or two, but that’s just making up six years of losses. And while the unemployment rate is at the lowest point since September 2008, the progress has been heavily dependent on labor market defections, like those in April, in combination with job gains.

This overstatement of labor market improvement in the current unemployment rate is why the Fed has recently abandoned its 6.5% threshold for considering raising short term interest rates. We’re there and the economic recovery is far from complete. On the other hand, the gain in payroll employment supports the Fed’s optimism regarding the economy going forward, and the decision to continue winding down its asset purchasing program, announced following its monetary policy setting meeting last week.

The Fed’s policy configuration, balancing accommodation to support a continuing but unfinished economic recovery, is a reflection of the complexities in Friday’s labor report: positive signals on the surface but a more complicated picture underneath.

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The Employment Situation for February – Weather The Right Signals

March 7, 2014

The Bureau of Labor Statistics (BLS) released the Employment Situation report for February. The establishment survey showed payroll employment expanded by 175,000 in February and the prior two months were revised upward for a combined increase of 25,000. From the household survey, the unemployment rate reversed last month’s decline, rising back to 6.7% from 6.6% in January. The labor force expanded by 264,000, the number of employed persons increased by 42,000, and the number of unemployed persons rose by 223,000.

The return to more robust growth in February payrolls is a positive signal after the disappointing slowdown in December and January. Indicators from the household survey regarding missed work due to bad weather suggest that the February gain could have been larger absent winter storms during the month. These “missed” jobs could provide a boost to payroll growth in the March report.

The increase in the unemployment rate could be a blessing in disguise if it represents the beginning of more consistent growth in the labor force, drawing back discouraged workers who have given up the job search in recent years.

In any event the uptick in the unemployment rate will have no impact on the Federal Reserve’s pace of reductions in bond purchases. An expanding labor force will bolster the Fed’s confidence, rather than undermine it, that the recovery is proceeding, and the Fed will continue its measured reductions in the pace of bond buying at the upcoming March meeting.

Today’s report is not as strong as it might have been but still has plenty of positive signals.

The Employment Situation for January – The Road to Nowhere

February 7, 2014

The Bureau of Labor Statistics (BLS) released the Employment Situation report for January. The report was disappointing overall but had a mix of good, bad and extenuating circumstances to keep the labor market outlook in limbo for a second month.

The establishment survey showed payroll employment expanded by 113,000 in January, following an upwardly revised 75,000 increase in December. The average monthly gain was 205,000 over the prior 12 months. These two months were the weakest since the spring slowdown in 2012, but were likely depressed by extreme weather.

According to the household survey, the unemployment rate dipped to 6.6% from 6.7% in December and 7.0% in November. The January decline was based on an increase of 616,000 in the number of employed persons that outpaced an increase in the labor force of 499,000. Both developments, an expanding labor force and an even greater expansion in employed persons are positives. In contrast, the November to December decline was based on defections from the labor force outpacing gains in employed persons. The bulk of the decline in the unemployment rate from its peak has come from labor force defections, so the January figures are a bright spot in the report.

Average hourly earnings ticked up and the length of the workweek held its ground, adding some additional modest ambiguity to an otherwise disappointing report.

With all eyes on the Fed, and all Fed eyes on the monthly labor reports, today’s report sheds little light on the Fed’s next move. Being neither strong enough nor weak enough to force the Fed’s hand on the pace of withdrawing its monetary stimulus, today’s report leaves it to next month to determine whether the labor market is moving forward, backward or nowhere, and whether the Fed will follow.

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The Employment Situation for November – The Fed’s Next Move Is Getting Closer

December 6, 2013

The Bureau of Labor Statistics (BLS) released the Employment Situation report for November. Payroll employment expanded by 203,000 and the prior two months were revised for a net increase of 8,000. The pattern in job growth is beginning to look like the substantial and sustained improvement in the labor market that the Federal Reserve has identified as the condition for beginning the process of winding down its bond purchases, popularly referred to as QE3, the third round of quantitative easing.

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The unemployment rate declined to 7.0% from 7.3% in October, but this sharp decline should be viewed with some skepticism. The household survey treated furloughed federal government workers as unemployed in October and employed in November. The large number federal workers changing status combined with federal workers that were misclassified in October and large swings in and out of the labor force in October and November suggests the drop in the unemployment rate may be distorted by procedural problems related to the furlough.

Possible technical problems in the unemployment rate aside, recent growth in payroll employment may convince the Fed that the labor market is healthy enough to begin easing monetary stimulus. The earliest possibility is the December 17-18 FOMC meeting. Fed officials have been reluctant to set a specific date or take any date off the table. December is a possibility but not a certainty. One thing is clear, absent any significant setback in labor market conditions the winding down of QE3 will begin sooner rather than later.


The Employment Situation for October – Employed Or Unemployed, That Is The Question

November 8, 2013

The Bureau of Labor Statistics (BLS) released the Employment Situation report for October and the results are all over the map. Because of different definitions used in the surveys, the impact of the partial federal government shutdown was negligible in the establishment survey but substantial in the household survey. And unrelated to the shutdown and furloughed federal workers there was a sharp decline in the labor force. The report is good, bad or inexplicable depending on which part you focus on.

The establishment survey was stronger than expected showing payroll employment expanded by 204,000 with the private sector adding 212,000 and the government sector subtracting 8,000. The establishment survey counts people who worked or received pay, so the furloughed federal workers were treated as employed. That’s the good part of the report.

The household survey categorized the furloughed federal workers as unemployed on temporary layoff and included a 448,000 increase in that subcategory of the unemployed. That’s the bad part of the report. But the number of employed persons declined by 735,000, the number of unemployed persons increased by only 17,000, and the number of persons leaving the labor force increased by 720,000. That’s an extremely large number of persons leaving the labor force and an extremely large gap between the decline in employed and increase in unemployed persons. That’s the inexplicable part of the report.

The unemployment rate ticked up to 7.3% from 7.2% which the BLS characterized as “little changed.” It really amounts to rounding back up the small change that was rounded down last month (0.04%).

It’s difficult to interpret this report. Expectations were for a soft report based on shutdown-related malaise, without regard to how the federal workers were categorized. This report defied all the expectations.


The Employment Situation for September – Pre-Shutdown Slowdown

October 22, 2013

The government shutdown caused a data blackout at the federal government statistical agencies. The lights are back on but the view could be better.

The Bureau of Labor Statistics (BLS) had the employment data collected but the processing and release was delayed by the shutdown. The Employment Situation report for September was softer than expected. From the establishment survey, total nonfarm payrolls added 148,000, with the private sector adding 126,000, a substantial slowdown from earlier in the year. The government sector added 22,000, mainly in state government education. The previous two months were revised upward by a total of 9,000.

From the household survey, the unemployment rate slipped to 7.2% based on weak labor force growth, moderate employment growth and rounding. The unrounded rate declined from 7.28% to 7.24%.

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The Employment Situation for August – Employment at the Fed

September 6, 2013

A mixed jobs report starts the drum-roll for the September meeting of the Federal Open Market Committee (FOMC), as analysts speculate over whether the committee will announce the start of tapering the Fed’s bond purchase program (QE3) or hold off until the December meeting.

The Bureau of Labor Statistics (BLS) released the Employment Situation report for August. From the establishment survey, total nonfarm payrolls expanded by a lower than expected 169,000, with the private sector adding 152,000 and government adding 17,000. The previous two months were revised downward by a total of 74,000. From the household survey, the unemployment rate dropped to 7.3%, but unfortunately the decline was based largely on a decline in the labor force of 312,000.

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The Fed has tied the tapering of its bond purchasing program to substantial and sustained improvement in the labor market. Today’s report can be read either way: the economy keeps adding jobs and the unemployment rate continues to decline, or, recent job growth is weaker than initially estimated and the decline in the unemployment rate is based on a declining labor force participation rate.

The Goldilocks nature of today’s report is unlikely to change any opinions about the appropriate timing of the Fed’s tapering, whether on the FOMC or not. September or December? We’ll just have to wait and see.


Number of Open Construction Jobs Remains High

July 9, 2013

Government employment data indicate that the count of construction sector job openings for the months of 2013 is the highest since 2008. While the increase in unfilled positions is consistent with the uptick in construction sector activity, particularly for home building, the data reflect only modest increases in total employment thus far.

For the construction sector, Job Openings and Labor Turnover Survey (JOLTS) data from the Bureau of Labor Statistics (BLS) indicate that gross hiring rose to 307,000 in May from 283,00 in April. However, the hiring rate, as measured on a 3-month moving average basis, has been slowing since the start of 2013.

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Consistent with reports of some labor shortages for builders, the number of open, unfilled positions in the construction industry remains near post-Great Recession highs. The number of unfilled positions in the sector stood at 103,000 in May, marking four of the last five months for which the total number of open positions was greater than 100,000. This is the first time this has occurred since 2008. Successfully filling open positions with qualified workers is a top concern for home builders in 2013.

The May job openings rate (open positions measured as a percentage of current employment) for construction was 1.7%. Measured as a three-month moving average, the openings rate (the blue line above) has staged a noticeable rise since September 2012. Combined with a declining sector layoff rate (nonseasonally adjusted), charted as a 12-month moving average in the graph above, these factors suggest more net construction hiring in the months ahead – if firms can find workers with the right skills.

Monthly employment data for June 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 2.133 million, broken down as 585,000 builders and 1.548 million residential specialty trade contractors.

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According to the BLS data, over the last 12 months, the home building sector has added 90,000 jobs. Since the point of peak decline of home building employment, when total job losses for the industry stood at 1.466 million, 149,000 positions have been added to the residential construction sector.

While employment growth for the sector is not expected to occur at rates seen for the growth in overall building activity, the current level of improvement for total employment remains a puzzle. This small amount of job creation could be due to increased hours for existing workers, but if true, this is not a sustainable situation. Expected increases in building should lead to further growth in residential construction employment over the course of the year. Thus far in 2013, home building employment is averaging monthly growth of about 9,000.

For the economy as a whole, the May JOLTS data indicate that the hiring rate was relatively unchanged at 3.3% 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 unchanged at 2.7% in May.

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The Employment Situation for June – Food For Thought

July 5, 2013

The Bureau of Labor Statistics (BLS) released the Employment Situation report for June. Total payrolls expanded by 195,000, with the private sector adding 202,000 and government subtracting 7,000. The previous two months were revised up by a total of 70,000. Homebuilding payrolls expanded by 5,200.

The unemployment rate was unchanged at 7.6%. The labor force expanded by 177,000 and the number of persons employ grew by 160,000.

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The Federal Reserve has begun the discussion about the end of bond purchases (QE3). Chairman Ben Bernanke’s congressional testimony and post-FOMC meeting press conference have sent the interest rate on 10-year Treasury securities up almost a full percentage point in May and June. Analysts will be viewing every economic data release through the prism of implications for monetary policy.

Any good news suggests the economy is healthy enough to improve without additional stimulus and increases the odds of an early end to QE3. Any bad news suggests the economy needs more help and pushes the beginning of the end of QE3 further into the future.

Three months of payroll employment growth in the neighborhood of 200,000 is pretty good news. We’ll see how good it looks when the second quarter GDP numbers are released in late July.