Friday, May 02, 2015 - April Jobs Report

April Jobs Report

by Sinclair Noe

DOW – 45 = 16,512
SPX – 2 = 1881
NAS – 3 = 4123
10 YR YLD - .01 = 2.59%
OIL + .57 = 99.99
GOLD + 15.70 = 1301.60
SILV + .44 = 19.56

Today is another Jobs Report Friday. We will go into quite a bit of detail here because really, most everything we talk about in regard to economics begins with work and jobs. It is my hope that you will join us here on the first Friday of each month to get your comprehensive, fact based coverage of the jobs report.

Last month the economy added 288,000 net new jobs, and the unemployment rate dropped to 6.3%. April marked the biggest monthly gain in jobs since January 2012, when the economy added 360,000 jobs. Employment gains for February and March were revised higher by a combined 36,000; that raised the monthly average to 214,000 jobs a month since the start of the year. Through the first 4 months of 2014, the economy has added 857,000 payroll jobs, slightly better than the first 4 months of 2013, despite the harsh winter this year.

In the current 58 month expansion, employers have added more than 200,000 jobs per month in 38% of the months. Current job creation performance is stronger than it was in the business-cycle expansion that occurred during the recovery in the early 2000s, even when a real estate construction bubble fueled growth.  Today’s job creation pace lags well behind previous recent economic recoveries, such as 1970, or 1975 that saw job creation above 200,000 in about 60% of months. Needless to say, 200,000 jobs a month means a lot less today with a population that is more than 100 million people larger than it was in 1970. Total employment is now only 113,000 below the previous peak, so we should top that next month; however, the overall population has increased in the past 6 years, so there are still millions of people without jobs.

The report came in far above expectations. The consensus estimates called for 210,000 new jobs and the unemployment rate inching down to 6.6%, however there was a wide range of estimates.

The drop in the unemployment rate to 6.3% was the biggest monthly drop in 31 years and the unemployment rate is at the lowest level since 2008, but the drop in the headline rate was for the wrong reasons; the participation rate declined to 62.8% from 63.2%, meaning the labor pool fell by 806,000 workers. The unemployment rate is measured against a labor pool of people who are considered actively looking for work or working. When someone stops looking for work, they stop being counted, although it doesn’t necessarily mean they wouldn’t like work.

There are 2 major reasons why the participation rate has dropped: the first reason is demographics, and the second is the economic downturn.

Looking at demographics, the baby boomers are retiring in massive numbers, and not always voluntarily. However, many boomers are re-entering the workforce in a stealthy manner; the highest rate of entrepreneurship activity belongs to the 55-64 age group. It turns out the recession spurred new-business formation. In a "necessity is the mother of invention" scenario, it appears that many people who lost jobs started their own businesses. Of course, it might take some time for a new venture to be profitable and in the meantime, those people might not be counted as actively seeking jobs.

Meanwhile, younger people are staying in school, either going back to school for training or re-training, or dragging out school because of the high cost of education. An interesting point here is that unemployment for young adults age 20-24 dropped from 12.2% to 10.6% in April. Millennials getting jobs; or dropping out of workforce. We don’t know for certain, but one possible explanation is that graduates from the Class of 2013, that have been biding their time looking for a job or just unable to find a job, suddenly got very serious about taking any kind of job as the Class of 2014 prepares to enter the workforce.

Another age group we watch is the 25 to 54 year olds; they’re in their prime working years, too young to retire and unlikely to be in school. The 25 to 54 participation rate declined in April to 80.8% from 81.2% in March, and the 25 to 54 employment population ratio decreased to 76.5% from 76.7%. The participation rate for this age group should increase as the economy improves.

The other reason is the economic downturn, many people lost jobs and have had a very difficult time finding work, driving long term unemployment to unacceptable levels. The recent loss of unemployment benefits for the long-term unemployed is another way in which people fell from the ranks; in order to receive unemployment benefits, one has to actively look for work. As the benefits were cut, people still unemployed were cut from the ranks. Extended benefits were cut off beginning in late December. If the expiration of benefits was causing hundreds of thousands of people to drop out of the labor force, it should have showed up in the data in January, or February. It didn’t. Maybe the unemployment rate fell because of 806k drop in labor force, a lagged effect from expiration of unemployment insurance, or maybe there is just some statistical noise. We won’t know for sure until we see a few more months data.

What’s also odd about the decline in the labor force is how it happened. The number of so-called re-entrants, unemployed workers who have started looking for jobs again, fell by 417,000. That’s the biggest drop since the government began keeping records in 1967.  And new entrants into the labor force, such as graduates or immigrants, fell by 126,000. That’s the biggest decline in more than five years. Put another way, two-thirds of the drop in the labor force stemmed from people choosing not to enter in the first place. Normally a decline takes place when workers exit the labor force.

According to the BLS, there are 3.452 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.739 in March. This is trending down, but is still very high. And it does not mean that 300,000 long term unemployed workers found jobs; they just stopped being counted.

And there is still quite a bit of slack in the labor market, with approximately 7.5 million workers employed part-time for economic reasons; people who have had their hours cut back or people working part-time because they can’t find full-time work. When you add in those under-utilized workers, you get a different measurement known as U-6, which dropped to 12.3% from 12.7% in March. The number of people holding multiple jobs jumped by 133,000 from April 2013 to April 2014. Women almost entirely led this statistic, with the number of employed single mothers increased 1.4% over the past year.

Hiring was widespread and it doesn’t look like there was any one industry or sector that had an unusual jump. Professional services added 75,000 jobs, but about one-third were temporary positions. Employment and temporary help services added 28,000 jobs. Retailers added 35,000 jobs, bars and restaurants added 33,000 and the construction industry hired 32,000 workers. Industries where minimum-wage employment is most prevalent in the economy, accounted for 40% of total new private-sector job creation in April, excluding health care. Manufacturers generated 12,000 jobs, but this was disappointing in light of recent economic data pointing to increased manufacturing activity; yesterday, the ISM reported it manufacturing index had increased to 54.9 last month, up from 53.7 in March. Government also added 15,000 jobs, with state and local governments adding 18,000 jobs and federal cutting 3,000 positions.

Average hourly wages were unchanged at $24.31, reducing the year-over-year gain to just 1.9%. Consumer spending has been outpacing income growth, resulting in low saving rates, meaning workers have less discretionary funds, meaning a dwindling likelihood they will go out and spend at an increasing rate. Paychecks have actually become leaner since the recession officially ended. Real median weekly earnings for full-time wage and salary workers during the first three months of this year were down 3% from the end of the recession.

Looking at the types of jobs making up employment also provides a cause for concern. Among 13 industries that make up total US private-sector employment, the 5 with the lowest nominal average weekly earnings represented about 52% of private-sector employment gains over the past year. Leisure and hospitality employment showed the strongest growth among low-earning industries, added 412,000 jobs over the year through April, representing about 17% of total private-sector job gains.

Middle-earning industries, professional and business services, construction and manufacturing, represented about 40% of annual job gains. While higher-earning industries made up about 8% of added employment. Among the five industries with the highest weekly earnings, private-sector employers added about 194,000 of these jobs over the past year. Longer-term trends show lopsided jobs growth, with lower-wage employment ramping up in recent years. During the recession, lower-wage industries made up 22% of job losses. But over the past four years, these jobs made up 44% of employment growth, according to a recently released report from the National Employment Law Project. One indication that workers aren’t particularly confident is that quitting is below pre-recession levels, signaling that many workers are unwilling to trade some job stability and security to advance their careers.

Today’s jobs report was good, one of the best months we’ve seen in a long time, and we have a 58 month trend of job gains, which is a heck of a lot better than bleeding jobs, but the trend is still not strong enough. Nearly five years since the economy began expanding, the labor market continues improving, but at a frustrating pace for the 10 million unemployed workers and 3 million people not counted as unemployed who still currently want a job. Ongoing elevated unemployment is not only a serious drag for those families enduring it, but it will continue to drag on the overall economy until lawmakers get serious about full employment and creating quality jobs that deepen and secure the middle class. 

Friday, April 04, 2014 - The March Jobs Report

The March Jobs Report
by Sinclair Noe

DOW – 159 = 16,412
SPX – 23 = 1865
NAS – 110 = 4127 (-2.6%)
10 YR YLD - .06 = 2.73%
OIL + .77 = 101.06
GOLD + 15.50 = 1303.30
SILV + .14 = 20.06

Today is a jobs report Friday. Let’s get geeky.

The Labor Department reported nonfarm payrolls increased by 192,000 jobs last month after rising by 197,000 in February (that’s revised from 175,000). The prior 2 months were revised to show 37,000 more jobs than previously estimated; the revisions indicate that the bad winter weather was not a huge problem for the labor market; it did have an effect but not huge, and we certainly shouldn’t hear any more weather related excuses. The unemployment rate was unchanged at 6.7% as more people were looking for jobs. The consensus estimate was 200,000 jobs, so the figures were a little below expectations.

Private employment rose to 116.09 million, finally moving beyond the previous high of 115.98 million recorded at the very start of the recession in January 2008.Total employment is just a little below the pre-financial crisis days; we still have about 437,000 fewer jobs than the peak in 2008, but private employment is now above the peak by 110,000 and at a new all-time high; the difference is that more than a half million government jobs have been cut during that time; also, the population and the labor force has grown over the past 6 years, so the unemployment rate remains fairly high. And the idea is not just to get back to where we were, but to get back to where we should be. Keep in mind, we have 15 million more people now than we did then.

The economy added 533 thousand jobs in Q1 this year compared to 618 thousand in Q1 2013; the bad weather is the excuse for the weaker performance. Still the unemployment rate has dropped from 8.2% in March 2012 to 6.7% now.

The Labor Force Participation Rate was increased in March to 63.2%. This is the percentage of the working age population in the labor force.  And while the participation rate is still low compared to the past 20 years, it is a positive sign that more people are looking for jobs, suggesting they were lured back into the job hunt as openings began to appear. Or possibly, more long-term unemployed were pushed back into the job market as benefits were cut. The number of long-term unemployed fell by 110,000, and over the past year, the ranks of the long-term jobless have dropped by 837,000; meanwhile, the ratio of the population reporting they had a job ticked up to 58.9% from 58.8%. Much has been made of the multiyear slide in the labor force participation rate since the financial crisis of 2008. In the last few months, however, the labor force participation rate has actually stabilized.

Anyway, about a half million people jumped back into the labor pool and about that many found jobs; if it were not for the increase in the size of the labor force, the unemployment rate would have fallen to 6.5%. It also means that the unemployment rate is unlikely to keep falling as sharply as it has in the last two years, because people who are again looking for work are counted as unemployed, while those who have given up and dropped out of the labor force are not.

There are 7.4 million people working part-time who would prefer to work full-time, or they are part time because their hours have been cut back, or they have given up looking for a job. There is a separate measure for them, known as the U-6 unemployment rate, which comes in at 12.7%; up from 12.6% in February, but down from 13.8% a year ago. The headline unemployment rate of 6.7% is known as U-3. The U-6 includes all those people in U-3 plus all the underutilized and discouraged workers. In healthier job markets, the gap between U-3 and U-6 is closer to 3% or 4%.

After months of declines in the part-time labor force, the BLS reported a spike of 414,000 new part-time workers in March, which was the largest monthly increase in nearly two years. This could just as well be an aberration, as it was a year ago, but the part-time picture in the American workforce is far from rosy. The financial crisis resulted in a spike in the number of part-time workers as a percentage of the labor force, and this has remained elevated ever since.

The increase in jobs was paced by gains in construction, retail and professional services. Government employment over all remained flat, with federal and state governments cutting 11,000 jobs even as local governments added 9,000 positions. Over the past 12 months, total federal employment has fallen by 85,000. That's pretty much how it has gone throughout the grinding recovery; private hiring has been slow but steady, while austerity has led to government job cuts that have helped keep the recovery frustratingly slow.

The health care sector added 19,000 jobs. Business services added 57,000 jobs. Food services employment increased by 30,000, bringing the sector’s gain over the past year to 323,000. The manufacturing sector lost 1,000 jobs.

While average hourly earnings were basically flat, the length of the average workweek edged higher. The average work week for private employees edged up to 34.5 hours, offsetting a net decline over the prior three months; as a consequence of the bad weather, many people lost time on the job, but it was made up in March. Average weekly hours, at 34.5 per worker, aren't far off of the 34.7 hours per worker recorded six years ago, but when you add up a fifth of an hour across more than 100 million workers, it makes a very big difference in the amount of time Americans actually spent on the job.

Average hourly earnings for private employees fell by 1 cent to $24.30 from a month earlier. Over the year, average hourly earnings have risen by 49 cents, or 2.1%. The average weekly wage rose to $838.55 from $833.83. The reason for this anomaly: a 12-minute increase in the average amount of time worked each week.  Conclusion: Bargaining power for workers is still subdued. But their services are more in demand.

The jobs report also provides details about who is benefiting from recovery and who is not. The recovery has been good for college educated workers and whites. It has been much more difficult for the long-term unemployed, young adults without a college education, and African Americans. Among adults 25 and older who have a bachelor’s degree the unemployment rate is just 3.4%, about half the over-all rate.

The unemployment rate for college graduates never went above five per cent in the downturn. At the other end of the educational spectrum, things were very different. For adults 25 and older without a high-school diploma, the jobless rate hit 15.6% in 2010. Last month, it stood at 9.6%.

Among white men aged 20 and over, the unemployment rate is now 5.3%; for African-American men over 20, it is 12.1%. The gap between white and black females is also very large, 5.3% of white women aged twenty and over are out of work (the same as the rate for white men), but 11% of black women in the same age group are jobless. Hispanics also have substantially higher rates of unemployment than whites, but the differences aren’t as large. Among Hispanic men aged twenty and over, the jobless rate in March was 6.9%; among Hispanic women aged twenty and over, the rate was 8.4%.

For teenagers between the ages of 16 and 19 who aren’t in school or college, the unemployment rate is 20.9%. That’s down from 23.3% a year ago. It’s still a very high figure, and, among minority teenagers, it’s even higher.

The stock market moved a little higher this morning following the jobs report. It wasn’t a bad jobs report that sank the market today. Most of the stories I read had a theme of not too hot, not too cold, a Goldilocks report. The Fed uses the jobs report to help determine the timing and pace of further cuts to its monthly bond-buying program. The central bank also looks to the unemployment rate as a factor in deciding when to raise its benchmark interest rate. This report did not sway the Fed one way or the other.

What went wrong on Wall Street? It’s always dangerous to lay an exact cause on any singular event, but the big damage today was in the Nasdaq and the tech and biotechs. There’s a little bit of nervousness about some of the high multiples in the biotech area and computer and Internet-related stocks. You’re having another wave of selling in that very high-momentum group. When you’re at record high levels, people start to get a little tentative going into weekends.