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.

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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.