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.

When Experts Misunderstand Unemployment Statistics


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I know everyone likes a conspiracy.  Obviously, hedge funds manager Kyle Bass appears to infer the government is  the Bureau of Labor Statistics (BLS) ‘semi-rigged’ the unemployment statistics.  In an interview on CNBC Squawk Box interview, Bass says that an improved unemployment rate is deceptive.  He expects that the unemployment rate might even drop further, but it will be misleading because it will be a result of people dropping out of the labor force rather than jobs being created. While he might have a valid point, it is incorrect to suggest that the government does not track ‘true’ unemployment.

Economists recognize that the ‘true’ unemployment rate not only tracks those currently looking for a job, but those that want a job and quit looking due to being discouraged.  This is measured and is located in Table A-15 of the monthly job report, thus not hidden from the public.  Unlike his claim that the true unemployment rate is 11 percent, this alternative measure of unemployment is actually at 12 percent.  Now before giving Bass praise for pointing out a supposed weakness in the unemployment rate, it should be noted that this figure has been steadily dropping over the last year.  In fact, it has dropped substantially from the last year when it was 13.6 percent.  Since the end of the recession in June 2009, we have recently seen a steep decline that suggests the job market is improving.

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This alternative measure of unemployment looks at the following:

  • Unemployed and currently looking for work
  • Marginally attached to the labor force, meaning that they are no longer looking for work, but want a job and have searched for a job within the last 12 months.  (Note:  We consider this to be the discouraged worker)
  • Working part-time for economic reasons.  (Note:  Would like to work full-time, but cannot find full-time work.  Therefore, it does not include part-time workers by choice, such as college students who only want to work part-time so that they can go to school full-time.)

Having said that, it is obvious that the jobs picture is not perfect.  Even though part-time employment has declined over the last year, it still remains highly elevated from the pre-recession period.  Also, wages also remain stagnant.  In my opinion, the main problem is a changing landscape of the economy where we are seeing a shift from value in using our hands (manufacturing) to using our minds (services).  Right now, we are in a transitional phase with plenty of low-paying, low skill jobs and many high-paying, high skill jobs.  The problem is there are not enough decent paying, middle skill jobs.  Until these workforce skills are updated, wages will remain stagnant.

While it makes for good TV, do not be fooled with this faux conspiracy.

Can monetary policy address U.S. long-term unemployment?


My latest contribution to Global Risk Insights examines whether monetary policy alone can cure the problem of chronic unemployment.  Key points include:

  • Can infer that new Fed Chair Janet Yellen will maintain current monetary policy due to continued labor market weakness, even though the unemployment rate is falling.
  • Impact of U.S. monetary policy can have negative consequences to emerging markets in Asia, Africa, and South America.
  • Questionable whether monetary policy can effectively address long-term unemployment.
  • Fiscal policy should be tailored to specifically address the needs of the low-to-medium skilled worker.

Global Risk Insights

With Janet Yellen newly confirmed as Chairman of the Federal Reserve, investors are now parsing her testimony to gain insight on the future direction of interest rates.  

One particularly interesting piece of her testimony involved the persistence of long-term unemployment and a high number of part-time workers: “These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.”

This statement is significant because previous Fed Chairman Ben Bernanke identified a threshold of 6.5% unemployment rate as a starting point for reversing bond purchases aimed at stimulating employment. Currently, the U.S. unemployment rate is very close at 6.6%, but it now looks as if the Fed is hedging its bets.

By continuing to purchase long-term bonds even if it is at a slower pace, the Fed will drive down the interest rate of the 30-year Treasury bonds. Since mortgage rates and…

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Three and Three Series: July Jobs Report


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In my inaugural three on three series, I will highlight three positives and three negatives that can be gleaned from July’s unemployment report released by the Bureau of Labor Statistics (BLS).

As for three positive takeaways,

  1. We saw the unemployment rate fall from 7.6 percent to 7.4 percent over the last month, and also experienced job growth of 162,000, which represents thirty-four consecutive months of positive job growth.
  2. A broader measure of unemployment (U-6) also decreased over the last year and is now down to 14 percent from 14.9 percent last year.
  3. Prospects of the long-term unemployed showed improvement with the median length of unemployment down from 16.8 weeks last July to to its current rate of 15.7 weeks.

However, there were also some negative takeaways, such as:

  1. This was the slowest amount of job growth since March and it fell short of analyst expectations of 180,000 jobs that were expected to be generated.
  2. Most of the job growth occurred in seasonal industries, such as retail trade and food services, while manufacturing and construction activity remain stagnant.
  3. While the labor force did not shrink much over the last year, the number of discouraged workers increased from 852,000 to 988,000.

In summary, the July jobs report was adequate, but little suggests that momentum is rising.  The next three months will be critical as we will see whether sequestration and congressional gridlock will darken future job prospects.

How Owning A Home Could Hurt Your Job Prospects


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Is it possible that when you buy a home, you are hampering your future job marketability?  In Wall Street Journal’s Real Time Economics, “Do Rising Homeownership Rates Lead to Higher Joblessness”, they say how this can be true.  The economic study by Dartmouth professor David Blanchflower and Warwick professor Andrew Oswald said,

“It suggests that a doubling of home-ownership in a state would be associated in the steady state with more than a doubling of the unemployment rate.”

While that sounds odd, here’s the reason why.  When a family purchases a home, that makes them less mobile.  When stuck with large mortgage, it’s not easy to leave town for brighter prospects elsewhere.  Therefore if you are living in an area where job prospects are not bright, then it might be harder to move to an area with better job opportunities.

So does that mean that one should not consider buying a home?  Of course not, it’s one of the more reliable vehicles to building wealth.  However, we do need to be choosy about the area where we locate to.  Ask yourself these two questions:

  1. Do you live in a seller or buyer market?
  2. Are your current job skills a match with the local labor market?

For question 1, if you live in seller’s market, then it will be relatively easy to sell your home at a higher price than you paid for it.  Assuming that you have enough equity in your home, then your labor mobility is good because you probably will have enough money to cover your mortgage with enough resources to finance moving expenses.  Go ahead and buy a home in that area.

If you live in a buyer’s market, then that means you are likely going to sell your house at a lower price than you bought it.  In that case, your labor mobility is poor and it will be difficult to move without significantly hurting your finances.  Be cautious about buying a home and continue renting.  You might want to research other more favorable markets to move to.  Consider this an opportunity to increase your savings, so that you can put down a larger down payment.

For question 2, if you were to lose your job tomorrow, how confident are you that you will find another job with similar pay in a reasonable amount of time?   If you believe that you can find another good job quick, then it’s time to contact your local realtor and search for that new home.

On the other hand, if you feel very vulnerable and believe that you will have to take a significant cut in pay, then it’s time to reassess.  The best time to look for another job is when you have a job.  Spruce up your resume and do your research.  Is there another part of the country where your skills are better appreciated?  Consider reading the Bureau of Labor Statistics’ Occupational Outlook Handbook as a guide to whether your current occupation is in high demand.  Then network and find where there is great demand and consider moving there.

In order to keep abreast of economic news, please consider subscribing to my free online newspaper at econprofaj.

Job Report Solid, But Remains Insufficient


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The Bureau of Labor Statistics released the U.S. jobs report for May and it was solid with jobs growing by 176,000 and the unemployment rate rising slightly from 7.5% to 7.6%.  Since it met the expectations of most analysts, the markets responded positively with stocks edging up.

On the bright side, we are seeing a steady downward trend in the unemployment rate with it falling from more than a half a percent from last May (8.2% to 7.6%).  The largest gain in jobs was in the business and professional services sector.  Also, a broader measure of unemployment that measures individuals, who are underemployed, has fallen from 14.4% to 13.8%.  That suggests that people are finding it easier to find full-time work.  Lastly, there has been some modest progress for the long-term unemployed.  The number of long-term unemployed has fallen from 42.4% to 37.3%/  However, this is still unacceptably high.  During normal economic times, this rate was closer to 20%.

On the negative side, it appears that more people are dropping out of the labor force.  Even though the number of discouraged workers declined over the last twelve months, that might be misleading.  Another indicator that measures the number of people, who want a job, but are currently not in the labor force because they believe employment prospects are dim paint a different light.  This shows that there are now 7,193 individuals, who are out of the labor force, but want to work.  This number is up from 6,835 in May 2012.  Lastly, the rate of job growth is insufficient to get us back to normal employment anytime soon.

Check out this quote from Heidi Shierholz from the Economic Policy Institute, who stated that:

“Given our deficit of 8.5 million jobs, we need more than 300,000 jobs per month to get to full employment by May 2016, three years from now and six months before the next presidential election.  At the job growth rate of the last year, we will still have a deficit of 4.6 million jobs in May 2016.”

While we can be encouraged that the labor market is showing steady growth, more robust job creation is necessary for our economy to prosper.

In order to keep abreast of economic news, please consider subscribing to my free online newspaper at econprofaj.