Friday, August 01, 2014 - Jobs, Mainly

Jobs, Mainly

by Sinclair Noe

DOW – 69 = 16,493
SPX – 5 = 1925
NAS – 17 = 4352
10 YR YLD - .05 = 2.50%
OIL - .32 = 97.88
GOLD + 13.70 = 1295.20
SILV - .09 = 20.40

The first Friday of each month brings us what I consider one of the most important economic reports we can cover, the jobs report; and so we provide comprehensive (wonkish) coverage.

The economy added 209,000 net new jobs in July. The unemployment rate moved up to 6.2% from 6.1%. Even though the economy added jobs, more people joined the labor force, and that is why the unemployment rate moved higher. The 209,000 new jobs was below estimates of about 230,000. The report from June was revised from 288,000 to 298,000; the May report was revised from 224,000 to 229,000 for a net 15,000 in upward revisions.

Employment is up 2.57 million year over year. We have regained the jobs lost in the downturn, and total employment is 639,000 above the pre-recession peak. Total employment is up 9.35 million from the lows of the recession, and private employment is up almost 9.9 million from the lows; the difference reflects the job losses in government related jobs.

So far this year an average of 229,000 new jobs a month have been created. That’s a significantly higher pace than in 2010 when a mere 88,000 jobs a month on average were added. Since the start of the year the economy has added 1.6 million jobs.  At the current pace, the economy could add 2.75 million jobs this year, which would be the best year for total and private job growth since 1999.

This was the sixth month in a row with more than 200,000 jobs added, and that hasn’t happened since 1997. It was probably a bigger achievement 17 years ago, because the economy and the labor force was smaller back then, but the employment recovery has been chugging along through a first quarter that was frozen by the polar vortex and rebound in the second quarter. And the private sector has been adding jobs consistently since the first quarter of 2010.

The unemployment rate was up to 6.2%. The jobless rate can rise for both good reasons (more people looking for work) and bad reasons (fewer people having a job). This month, more people were looking for work. The Labor Force Participation Rate increased to 62.9% in July; this is a measure of how many people who are of working age are actually in the labor force and working or looking for work. The idea that the pool of labor is increasing is a positive; the idea is that some people who have been unemployed for a long time are now finding jobs. The trend in employment growth remains more than strong enough for the unemployment rate to keep trending down, even though the rate rose a tenth this month

Part of the decline in the participation rate was due to demographics; many older workers retired, whether they wanted to or not, while many younger workers stayed in school or returned to school. So, it’s helpful to look at people aged 25-54, in their prime working age; among this group, the participation rate declined slightly; this confirms that younger and older workers were jumping back into the labor pool.  Still, the employment to population rate, which measures the country’s population that reported having a job in July was unchanged at 59%, a number that was up only barely from its 58.7% level of a year ago.

There are still more than 3.1 million workers who have been unemployed more than half a year. And there are just over 7.5 million people working part-time for economic reasons. These workers are included in an alternate measure of unemployment known as the U-6, which includes unemployed and underutilized workers; U-6 increased from 12.1% to 12.2%.

Many people think the U-6 is a more accurate measure of the jobs market, but let’s dig a little deeper. There are 9.6 million people unemployed and actively looking for a job. There are more than 2 million people who have stopped looking for a job within the past year. When you start adding all the unemployed workers who want a job, plus involuntary part-time, plus discouraged workers, you come up with about 23 million people that could possibly move into the labor pool. There is still massive slack in the labor market, and it will take a long time to take up the slack. For now, it is a slow, steady slog.

Where is the job growth coming from? Professional and business services added 47,000 jobs. Retail employment gained 27,000 jobs. Manufacturing added 28,000 jobs last month but the sector has recovered only 30% of the jobs lost during the recession. Construction added 22,000 jobs. Leisure and hospitality gained 21,000. Education and health services added 17,000. Government added 11,000. State and local government employment is now up 151,000 from the bottom, but still nearly 600,000 below the peak. Federal government jobs have dropped by 22,000 since the start of the year. The loss of government jobs is one of the major factors in the slow jobs recovery. In previous downturns, government did not have layoffs, and sometimes increased hiring. In this downturn government jobs were cut in a wave of austerity measures.

Even though the economy has been adding jobs, it has not been enough to push a recovery in wages. In July, average hourly wages rose a penny to $24.45, a disappointing result after strong gains in June and May. In 23 of the past 24 months, the yearly increase in hourly pay has ranged from 1.9% to 2.2%, or about one-third less than usual during an economic recovery. The 12-month increase in wages as of July was just 2%; and inflation wiped out about three-fourths of that gain. There’s been no change since the start of 2014. While it might seem counterintuitive that wages are flat while jobs are being added, the likely reason is that there are a lot of poor paying jobs plus a few very good paying jobs. The average length of the workweek for private sector workers was unchanged at 34.5 hours.

Stronger than expected US growth figures on Wednesday showed second quarter GDP up 4% on an annualized basis, along with hawkish comments from US Federal Reserve board member Charles Plosser, it prompted fears that the central bank may increase the cost of borrowing sooner than expected. Today’s non-farm payroll numbers were just weak enough to ease concerns about possible tightening from the Fed, yet not so awful as to indicate a downturn. It still points to a job market and an economy that is improving, but there is no real wage pressure and nothing to indicate inflation is a concern.

We had a couple more economic reports today. The Institute for Supply Management said its index of national factory activity rose to 57.1 in July, the highest since April 2011, from 55.3 in June. A reading above 50 indicates expansion in the manufacturing sector.

The Thomson Reuters/University of Michigan's final July reading on the overall index on consumer sentiment came in at 81.8, down from the final June reading of 82.5. The surveyors report that consumers’ attention has been dominated by jobs and income growth.

For the week, the S&P 500 fell 2.7%, its biggest weekly percentage loss since the week ending June 1, 2012, while the Nasdaq fell 2.2%. The Dow ended down 2.8% for the week. The Dow's losses dragged it further into negative territory for the year. For the year-to-date, it is down 0.5%.

Markets have suffered a turbulent few days, hit by a combination of interest rate concerns and growing geopolitical worries. The violence in Gaza also added to the sense of events escalating out of control; a proposed 72 hour cease fire didn’t last one day. An Israeli soldier was captured, and it looks like violence will escalate over the weekend. The week saw Argentina defaulting for the second time in 12 years, while continuing tensions with Russia over the Ukraine led to the imposition of further sanctions which could hit businesses and put the brakes on global growth.

It was a big week for US economic activity, with jobs and GDP statistics and a Fed meeting, but it was European equity markets that took a real tumble. Portugal was a big loser, as Banco Espírito Santo reported the largest-ever loss for a Portuguese company, sending its shares spiraling and prompting probes into possible accounting fraud at the bank.

Portugal’s major stock index dropped 10% for the week. German stocks were hit following stepped up sanctions against Russia, a major supplier of natural gas to Germany; the DAX index slipped 4.5%. Greece, Austria, Spain, UK, and France all saw declines of 3% or more. The major Russian index dropped about 1%.

Europe posted its own jobs report. Eurozone unemployment dropped to 11.5%, which is absolutely horrible, but getting better. Meanwhile, the region continues to flirt with the prospect of deflation, with euro zone wide prices rising a scant 0.4% in July from the prior year. So, there is still plenty the ECB can do to stimulate the economy over there.

Meanwhile, Congress is calling a 5 week recess, an extended summer vacation, which even Europeans think is excessive. They managed to get a few things done before running away. They passed a $16 billion VA bill to help deal with extensive treatment delays and a recent record-keeping scandal. They cobbled together a patch for highway funding, just a temporary patch. This Congress has only managed to pass 142 bills into law, which puts the legislative branch on pace for its least productive session in modern history. And now they’re heading out for a 5 week vacation. Maybe we’ll get lucky and they won’t come back.

Friday, June 06, 2014 - Jobs Report Friday

Jobs Report Friday
by Sinclair Noe

DOW + 88 = 16,924
SPX + 8 = 1949
NAS + 25 = 4321
10 YR YLD + .01 = 2.59%
OIL + .31 = 102.79
GOLD - .90 = 1253.30
SILV - .02 = 19.11

Another record high close for the Dow Industrial Average and the S&P 500.

It’s said that it takes a war to end a war; 70 years ago, 150,000 soldiers invaded Normandy, and it’s estimated that about 4,400 lost their lives in the biggest military assault in history, D-Day. There were ceremonies on the beach today, as well as locations around the world, to honor the soldiers lost and the veterans still with us; their numbers are dwindling with the passage of time, but about 3,000 made the pilgrimage to Normandy today.  For the rest of us, it’s hard to imagine what happened 70 years ago, but whatever difficulties we may face in our day to day lives seem small compared with what those men faced. This is a special day, one that should never be forgotten.

Each month we analyze the jobs report. The jobs number came in about as expected. Non-farm payrolls added 217,000 jobs in May. The unemployment rate, which is drawn from a different survey of households, remained unchanged at 6.3%.

April’s employment numbers were revised down to 282,000 jobs added from 288,000. March payroll figures were not revised, remaining at 203,000 jobs added. This is the fourth consecutive month that non-farm payrolls increased more than 200,000. That is the first time that we have seen four consecutive months of 200,000 or more since October of 1999.

The labor force participation rate also remained unchanged from the 62.8% rate reported for April. The participation rate has shown no clear trend since this past October but is down by 0.6% over the year. At 62.8%, the labor participation rate remains at lows not seen since the late 1970s, a sign that many Americans have given up the search for work entirely and remain wary about their prospects of getting a job, not even bothering to look for one. There are 3.37 million workers who have been unemployed for more than 26 weeks and still want a job; this is down from 3.45 million in April. Long-term unemployment is trending down; now at the lowest level since March 2009, but still high.

There are many reasons why the participation rate is low, and one key factor that we’ve heard repeated is that it is simply a case of demographics, or older workers who are near retirement age. However, according to data from the OECD, the employment to population ratio for workers between ages of 25-54 is down by 3.5 percentage points from its pre-recession level; and for workers between the ages of 55-64 it is only down by 0.9 percentage points.

With today’s jobs report, the US economy is now back to pre-recession peak levels of employment; we have recovered the number of jobs that were lost, and employment is now at an all-time high. This is the longest post-World War II recovery the US has experienced. The US lost 8.7 million jobs in the recession. Through the first five months of 2014, the economy has added 1,068,000 payroll jobs - slightly better than during the same period in 2013 even with the severe weather early this year. From the period between World War II and the 1980s there was a fairly predictable pace for recoveries. It took roughly six months for US employment levels to recover after each post-war recession through the 1980s. Then, things changed. It took 15 months after the 1990–91 recession for employment to reach its pre-crisis levels, and 39 months after the 2001 recession.

While the addition of nearly nine million jobs since hiring bottomed out in February 2010 is certainly good news, the number is still far from what is necessary to accommodate new graduates and millions of others who have entered the work force since payrolls last peaked in January 2008 at 138,365,000 jobs. We now have about the same number of jobs as we did then, but millions more who might wish to hold them. So, we’re back to where we were but not where we should be.

Here's one way of looking at that. There were 7.6 million unemployed people in the US in January 2008, and the unemployment rate was 4.9%. Today, there are 9.8 million unemployed Americans, well over 2 million more than before the recession, and the unemployment rate is much higher.

Another important milestone as today’s report marks the 51^st consecutive month of private sector job gains, which matches the longest previous string of consecutive employment gains. Our current streak matches the one that ran from February 1996 to April 2000. These two milestones give us an indication of how deep the losses were, but also how much further we need to go to get back to a solid economy.

The number of persons working part time for economic reasons declined in May to 7.26 million from 7.46 million in April.  These workers are included in the alternate measure of labor underutilization, known as U-6, which decreased to 12.2% in May from 12.3% in April. This is the lowest level for U-6 since October 2008, and down from the peak of 17.2%, but still high by historical standards.

Within various job segments, the business and professional services segment added 55,000 jobs, the same as its average monthly job gain over the prior 12 months. The healthcare industry added 34,000 jobs for the month, twice its average monthly gain for the prior twelve months. Retailers added 12,500 jobs and the transportation and warehousing sector added 16,400. The manufacturing sector added 10,000 jobs, and the length of the typical workweek for manufacturing workers increased slightly to just over 41 hours, a sign factory managers would rather add overtime instead of hiring additional workers. By contrast, the workweek for all employees in the private sector, including white-collar workers, was unchanged at 34.5 hours.

In May, average hourly earnings rose 5 cents to $24.38; over the past twelve months, average hourly earnings have risen 2.1%. We frequently hear that employers would hire more workers but the workers lack the skill set for the jobs. If employers were actually having difficulty finding workers with the necessary skills we should expect to see occupations or industries in which wages are rising rapidly. That is how employers attract workers for positions they have trouble filling. We are not seeing any major sectors of the economy with significant increases in wages, so that tends to invalidate the issue of a skills mismatch.

Even as private employers have gradually increased hiring in the recovery, the work force at government agencies and the Postal Service has shrunk dramatically. Total government employment is still down by more than one million from where it was four years ago. State and local governments added 6,000 jobs.  State and local government employment is now up 107,000 from the bottom, but still 637,000 below the peak. It appears state and local employment is now increasing.  Federal government layoffs are ongoing, with another 5,000 jobs lost in May.

Unlike previous reports, the gains have been broad based—there were new jobs created in many sectors, including higher paying and important ones like manufacturing and construction. But 50% of all the jobs being created in this country are still in the low-wage category: retail clerk positions, home heath aids, waitresses and the like. And more importantly, pay isn’t going up much. While it is certainly better to have a job compared to no job, better still to have a job that pays decent wages, and that is still missing.