Service Sector, Job Openings Show More Growth

Financial FAQs

More economic data this week make job and growth prospects for 2016 look even better. And this is on top of the very strong March employment report. The March ISM Non-manufacturing index (i.e., for the service sector) rose to 54.5 percent, up from 53.4 percent in February. The employment index increased in March to 50.3 percent, up from 49.7 percent in February. These are wow numbers!

The Non-Manufacturing Business Activity Index increased to 59.8 percent, 2 percentage points higher than the February reading of 57.8 percent, reflecting growth for the 80th consecutive month, with a faster rate in March. And the New Orders Index registered 56.7 percent, 1.2 percentage points higher than the reading of 55.5 percent in February.

Note: Any number above 50 indicates more than 50 percent of the surveyed purchasing managers say their companies are expanding in those areas.

Graph: Calculated Risk

 

So are we approaching full employment, the holy grail of most economists and the Fed’s overriding mandate, as we’ve been saying? This is even though the unemployment rate rose a notch to 5 percent from 4.9 percent. But it was because more Americans joined the labor force, the Labor Department said Friday. The size of the labor force has increased by more than 2 million people in the past five months, a clear sign that jobs are easier to find.

And the Labor Department’s just released JOLTS report shows there are more job openings that are being filled. The number of hires increased to 5.4 million (+297,000) in February, the highest level since November 2006. The number of hires increased for total private (+278,000) and was little changed for government. Hires increased in retail trade (+102,000), accommodation and food services (+78,000), educational services (+44,000), and state and local government, excluding education (+25,000). Hires declined in mining and logging (-9,000). In the regions, hires increased in the South. Until now, government (including state and local) hiring has been almost non-existent during the recovery.

Large numbers of hires and separations occur every month throughout the business cycle, but we don’t see the whole labor picture until the monthly JOLTS (Job Openings and Labor Turnover Summary) report comes out.

Net employment change results from the relationship between hires and separations. When the number of hires exceeds the number of separations, employment rises, even if the hires level is steady or declining. Conversely, when the number of hires is less than the number of separations, employment declines, even if the hires level is steady or rising. And, over the 12 months ending in February, hires totaled 62.1 million and separations totaled 59.4 million, yielding a net employment gain of 2.7 million, says the Bureau of Labor Statistics.

Graph: Marketwatch

 

Lastly, and maybe the major determinate of future growth, is the record expansion of the labor force. Marketwatch economist Rex Nutting reports the U.S. labor force grew at the fastest pace on record in the past six months, according to Labor Department data released recently.

“After years of stagnant labor-force growth or even declines," said Nutting, "millions of potential workers are joining or rejoining the workforce. In just the past six months, the labor force (which consists of everyone who holds a job plus everyone who is actively searching for work) has increased by 2.4 million. Almost all of them are finding work. Employment has increased by the same amount since September.”

It is the most since at least 1948, when the BLS first began measuring the size of the labor force. The old record of 2.1 million was set in July 1973, says Nutting. That is leading to a lot of hires, folks, now mainly in the service sector that pays lower wages, but very good for future growth prospects.

Harlan Green © 2016

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