Is Jobs Engine Running Out of Steam?


After experiencing optimism earlier in the year, there are signs that the U.S. jobs engine might be slowing. Certainly, the turmoil experienced in China, Europe, and the Middle East are finally starting to drag down the economy.  Then the lack of robust business investment is especially problematic.  Unless that turns around soon, we might be approaching recessionary status.

The Bureau of Labor Statistics released its jobs report for September and it showed a steady unemployment rate of 5.1 percent with an increase of 142,000. Labor force participation rate continues its steady trickle downward to 62.4 percent, though the employment to population ratio showed a modest tick up to 59.2 percent.

Even though the unemployment rate remains steady, the rate of job growth has slowed. Over the last three months covering July-September, we have experienced an average of 167,000 jobs. That is almost a 30 percent decline from last year’s rate.  With construction, manufacturing and wholesale trade showing little change, that offers a hint that this downward trend could continue as we head toward winter.

It is troubling that business investment hasn’t followed suit with consumer spending.  Though household spending has been relatively healthy at 3.2 percent over the last year, we cannot say the same for industry.

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Even though some of that can be attributed to uncertainty from various political and global events, it will be difficult to maintain a robust economy without further investment.  Both shipments and new orders of core capital goods have shown negative growth over the last year.

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Another issue is that wages remain stagnant.  Over the last year, wages have grown at a 2.2 percent pace, which is well below what we experienced pre-recession.  Until we see wages approach the 3 percent clip, it will be difficult to imagine a more robust economy in the future.

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Is this the beginning of a downward spiral?


Lack of Income Mobility Hurts Us All

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When looking at the New York Times’ David Leonhardt’s fascinating research on how your location determines your income mobility, there are some obvious conclusions.

We all know that there are certain areas where poverty is rampant and multi-generational.  Those are areas where we would expect income mobility to be low.

What is striking is that even the earning potential of the affluent is affected by location.  In areas designated below average in income mobility, future income is also diminished for high income households.

Some will take this data and simply conclude that families must leave low income mobility areas in favor of high income mobility areas.  Certainly, we have seen instances where that has already taken place.

However, what if low income mobility areas greatly outnumber high income mobility areas?  There are certain regions of the U.S. where some combination of family traditions, marketable skill sets, and quality of life concerns limit where you are willing to move.  A look at the U.S. map shows there are very few states that are effectively avoiding this problem.

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Areas in blue and green indicate good income mobility, while red and orange areas suggest improvement is necessary.  Though it appears that the Great Plains region is excelling, the South and Southwest regions are not.

Therefore, what can be done to boost income mobility, so that overall living standards improve?

First, let us look at five common themes that drive good income mobility:

  1. Less segregation by income and race
  2. Lower levels of income inequality
  3. Better schools
  4. Lower rates of violent crime
  5. Larger share of two-parent households

Perceived cultural differences drive residential segregation patterns.  When there is the presence of unruly children and lack parental involvement in the schools of some communities, upwardly mobile parents are reluctant to place their children in those schools.

This mindset has implications that drive all five of the above factors.  White flight emerges and drives them away from blacks because there is a perception that black families have discipline issues and devalue education.  High income families isolate themselves from low income families for similar reasons.

Regions where there are one or two good schools surrounded by a number of under-performing schools can stigmatize a region and reduce overall investment and job creation.  Those economic factors often drive up violent crime and result in more unfavorable family compositions.

In order to address this problem, we must realize that solutions must come locally, rather than nationally.  In an era of high federal deficits and strained state budgets, it will be difficult to solve these socioeconomic problems with an influx of public funding.

Instead, it will take strong and inclusive civic leadership where serious dialogue takes place on race and social class.  Identifying influential leaders covering a broad spectrum of the community, including industry, education, non-profit organizations, and religious institutions, will be essential.  Establishing parameters that allow for free-flowing dialogue will be challenging, but necessary to overcome the wall of fear and mistrust.

Communities committed to active engagement and willingness to seek common ground on difficult issues will thrive.  On the other hand, communities accepting the status quo will continue to wilt.

Are you willing to start the dialogue and push your community forward?

Are We Seeing Weakness In U.S. Jobs Market?

March job numbers were disappointing.  Even though the unemployment rate was unchanged and this marked 61 months of positive job growth, job gains of 126,000 was the lowest since December 2013.  Though one should not overreact to data over a month’s period, we are seeing evidence of a disturbing trend.  Here’s the quarterly job rates over the last four quarters:

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Certainly, the last quarter of 2014 performance was strong, but the first quarter saw a decline of 39 percent and this was despite low gas prices that you would think boost consumer spending.  However, that has not occurred.  It is possible that a stronger U.S. dollar and Middle East turmoil might be finally filtering to U.S. employment figures.  A stronger dollar makes U.S. goods relatively more expensive than foreign goods, so that would lead to lower sales and dampened expectations for job growth.  Then factor in troubled spots throughout the global economy and that also diminishes outlook for U.S. exporters, who have gained greater influence over the overall economy.

So is this temporary or a precursor to further decline?

Most industries witnessed little growth, though there were some modest exceptions.  Retail trade employment rose at a similar rate to last year.  There are also steady gains in the health care industry.  Even though there were job gains in professional and business services, its rate of increase was less than last year.  However, there was not much growth in any other sectors.

Despite these concerns, there are some positive trends to note.  One, the unemployment rate is falling and the labor force participation rate is starting to stabilize a bit.  There has been little change in the labor force for over a year.  We can see this from the Atlanta Fed graph below.

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Another encouraging sign is that long-term unemployment continues to fall over the last year.  Over the last year, the percentage of long-term unemployment has fallen from 35.3 percent to 29.7 percent.  Due to this improvement, a broader gauge of unemployment (U-6) has fallen from 12.6 percent to 10.9 percent since March 2014.

On the other hand, there are troubling signs that appear to be on the horizon.

  1. Manufacturing activity is falling.
  2. Retail sales, excluding food, have fallen over the last couple of months.

With falling gas prices, one would think that it would loosen the pocketbook of consumers, but that has not come to fruition yet.  Retail sales have fallen below expectations over the last few months, which suggests that they are not pocketing this new-found wealth back into the economy.  A recent slowdown in manufacturing activity may mean that firms are not expecting robust growth this year.  That is consistent with a survey of CEOs, who are predicting modest growth that will fall below the 3 percent threshold that would point to good growth.

In summary, it appears that the downside risk outweigh the upside risk, so do not be surprised if turbulence returns to the labor market.

Recent Job Reports Charting Success

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The February jobs report was released by the Bureau of Labor Statistics on Friday.  It paints a relatively rosy picture with solid job growth of 295,000 and a declining unemployment rate that reached 5.5 percent.  Wall Street Journal’s Real Time Economics provides an informative snapshot of the recent job trends in employment.

Chart 1:  Year-to-year job gains are steadily rising.

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Chart 2:  Unemployment rate continues to fall.

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Chart 3:  Labor force participation rate continues to fall which is not good, but employment to population ratio is rising, which is good.

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Chart 4:  Even though the type of jobs are improving, we are still seeing more part-time jobs than full-time jobs.

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Chart 5:  Unemployment rate is falling for all levels of education.

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Chart 6:  Long-term unemployment rate has steadily fallen, suggesting that the job market is improving.

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Chart 7:  While length of unemployment remains higher than pre-recession period, it is also falling.

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Chart 8:  While long-term unemployment is still above pre-recession levels, short-term unemployment is below it.

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Chart 9:  Even though average hourly wages remain relatively stagnant, the number of hours worked is rising, which is driving up average weekly earnings over the last quarter.

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Chart 10:  Recent surge in employment suggests that we might be near full employment.

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When evaluating labor markets, it is more useful to evaluate them over an extended period.   Most of these ten charts suggest that the U.S. labor market is headed in the right direction.



Labor Market Momentum Continues To Grow

The Bureau of Labor Statistics released their January 2015 jobs report that showed the economy grew by 257,000 jobs and the unemployment rate had a modest increase at 5.7 percent.  This is a good sign because January and February are typically slow hiring months with weather being a factor.  Over the last six months, we have gained at least 250,000 jobs or more in four of those months with an average job growth of 282,000.

Here is why the figure of 282,000 is significant.  If we can maintain this pace over the next two years, then we can close the jobs gap originating from the Great Recession before 2017.  Even though we have recovered all of the jobs lost from the Great Recession, a gap remains because there were not enough jobs created to account for the growth in the labor force.

When consumers feel that low gas prices will be permanent, we feel ‘richer’ and that will show in our spending habits.  As a result, we have seen retail trade employment grow by 46,000.  Other industries enjoying gains include health care, financial services, and manufacturing.

Another encouraging sign is in construction.  Despite January typically being a slow month due to weather, there was a gain of 39,000 jobs.  This figure exceeds monthly average of 28,000, thus suggesting that the housing market and business activity might see gains in the future.

Previously, we have seen job gains, but wages have been stagnant.  Hopefully, that trend will begin to reverse, which we have seen in January with average hourly wages increasing by 25 cents.  Even though the Fed will closely monitor wage growth for concern of inflation, Americans will be gratified to see their pay increase in the future.

Here are three graphs courtesy of the St. Louis Fed’s FRED research website that show how much the labor market has improved over the last year.

  1. Civilian unemployment rate is steadily falling.                 Screen Shot 2015-02-09 at 3.59.34 PM
  2. The alternative measure of unemployment (U-6) rate that attempts to measure discouraged workers and underemployed workers continue to fall.   Screen Shot 2015-02-09 at 4.00.52 PM
  3. Part-time employment for economic reasons is also falling.  Screen Shot 2015-02-09 at 4.02.03 PM

We are off to an encouraging start in January, so let’s hope the momentum continues through the year.

U.S. Economic Growth Remains Solid Despite Not Keeping Pace

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The U.S. Bureau of Economic Analysis released its preliminary estimate of 4th quarter results and it shows that economic growth slowed considerably from last quarter’s torrid pace of 5 percent to 2.4 percent.  This estimate should be viewed with caution because it is based on incomplete data and further revisions will be released in the future.  Having said that, it still remains a decent figure and is more in line with what we experienced throughout the year.  If this quarter’s growth were to receive a grade, it would be C+ without a curve, but an A with a curve.

What to smile about 4th quarter growth:

  • Consumer spending picked up, which can be explained by low gas prices that freed up more money to spend in other areas.
  • Business spending also grew, particular in intellectual property and residential.

What to frown about 4th quarter growth:

  • A weakening global economy and resurgent U.S. economy drove down net exports.
  • Federal government spending contracted by the largest margin of the year.
  • The pace of equipment spending dropped and overall growth in fixed investment and structures grew at a slower rate.

Overall, we should still be encouraged by these numbers.

Setback In U.S. Retail Sales Temporary Blip


Even though U.S. retail sales in December were down slightly from November, the U.S. economy continues to gain momentum.  While some are suggesting that this represents a chink in the armor in the reemergence of the U.S. economy, this is likely a temporary setback and one should fully expect our U.S. retail sales to continue its resurgence through the first quarter.

Here are reasons for U.S. optimism:

  1. Low gas prices should continue for the foreseeable future.
  2. Consumer confidence will continue to rise as they start to believe low gas prices are permanent.
  3. While energy and commodity sectors will struggle, the expected rise in consumer spending should offset those declines.
  4. As consumers believe low gas prices will be more permanent, they will loosen their wallets more in the future.

Here are reasons for concern:

  1. Energy and commodities sectors will take a hit and possibly affect banking and access to credit.
  2. Countries outside the U.S. are experiencing economic decline, which will impact U.S. exporters.

Optimism outweighs concerns due to:

  1. U.S. economic activity is strongly weighted toward consumer spending with it representing approximately 70 percent of all economic activity.
  2. Lower energy and commodity costs will make it more attractive for retailers to expand operations and create jobs.

Despite these potential threats, the strength of the U.S. consumer should lead the U.S. retail sales to rebound at a healthy rate in the first quarter of 2015.