Too Few Jobs!

 

Financial FAQs

“The number of job openings was little changed at 7.1 million in November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires were little changed and total separations were unchanged at 5.1 million each.” BLS.gov

CalculatedRisk

The Labor Department’s JOLTS survey is the first look at job formation before the official December U.S. unemployment report, and it isn’t pretty. The number of job hires equaled the number of ‘separations’, or those leaving the workforce for various reasons—voluntary or involuntary. 

(The blue line is Hires and red bars are Layoffs, Discharges, and other in the Calculate Risk graph. The black line is the total number of Job openings. It has fallen from its high of 12,000,000 job vacancies in 2022 after the COVID-19 pandemic.)

This means existing job positions are being replaced but no additional hires. Companies are holding on to their workforce, in other words, replacing those that are leaving for various reasons, but not expanding their workforce.

Trump’s Labor Department doesn’t tell us why but we can surmise that tariffs are the main culprit, since without the Supreme Court decision, companies don’t know if the existing so-called retaliatory tariffs enacted on April 2 are even legal. Imagine the refunds that the Trump administration has promised to return to importers if SCOTUS rules against him!

The number of hires decreased in state and local government, excluding education (-39,000) and in state and local government education (-31,000). Hires increased in federal government (+11,000), said the Bureau of Labor Statistics.

U.S. manufacturing activity fell to 47.9% in December, the Institute for Supply Management said Monday. This is the lowest reading of the year and the 10th straight month of contraction in the factory sector. Any number below 50% signals contraction.

“Looking at the manufacturing economy, 85 percent of the sector’s gross domestic product (GDP) contracted in December, compared to 58 percent in November, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI^® of 45 percent or lower) increased to 43 percent, compared to 39 percent in November,” said Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.

ADP, a private payrolls purveyor, has said that just 41,000 jobs were added to payrolls in December. They were mostly in Leisure/hospitality and Education/healthcare, which means the service sector is still limping along.

This is in fact job stagnation, and with the manufacturing sector still in recession and inflation continuing to rise, it’s looking like overall economic stagflation is afoot.

How is a return of stagflation not inevitable with Republicans and Trump continuing to break up the existing world order? He has basically invaded Venezuela and threatened other countries with military intervention, how could it not be otherwise?

Who will want to do business with America at the point of a gun?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

GDP Growth Still Below Average

Popular Economics Weekly

There is a reason second quarter Gross Domestic Product growth was so weak—up just 1.2 percent, after 0.9 and 0.8 percent upticks in the last 2 quarters. Pundits attributed it to the lack of capital expenditures, whereas consumer spending increased some 4.2 percent, which should mean a 3 percent annual growth rate, at least. But neither the private nor public sectors are investing much in future growth.

“The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased,” said the BEA announcement of last Friday.

Graph: Calculated Risk

Though Personal consumption expenditures (PCE) were up 4.2 percent vs. 1.6 percent in Q1, said the report, residential investment (RI) decreased at a 6.1 percent pace. Equipment investment also decreased at a 3.5 percent annualized rate, and investment in non-residential structures (i.e., commercial/industrial) decreased at a 7.9 percent pace due to the recent decline in oil prices.

Graph: BEA

It is also due to the lack of government spending. Public spending on such as infrastructure would employ millions and improve productivity, something both Presidential candidates say they want. Private sector growth should then follow, as even public works projects have to be built by private sector workers in private sector companies.

That is perhaps the major reason private sector corporations are investing less. There’s a lack of confidence in the future, what with Brexit maybe damaging future EU growth, and a certain Republican Presidential candidate threatening to blow up the US economy with massive tax cuts for the wealthiest, a trade war with the rest of the world, and no minimum wage increase.

Economist Dean Baker has said many times there is no secret to expanding employment and growth: “The point here is a simple one, we know how to get out a depression. It's called "spending money." We got out of the last Great Depression by spending lots of money on fighting World War II. But guess what, the economy doesn't care what we spend money on, it responds in the same way. So if we instead (of bailing out the banks with TARP) had spent 20 percent of GDP on building highways, housing, hospitals, and providing education and child care it also would have led to double-digit economic growth and below 3.0 percent unemployment.”

The consumer is healthy with the 4.2 percent spending increase, though consumers are saving much more these days, a result of growing incomes. Personal saving was $763.1 billion in the second quarter, compared with $847.8 billion in the first (revised). The personal saving rate -- personal saving as a percentage of disposable personal income -- was 5.5 percent in the second quarter, compared with 6.1 percent in the first, though it just dropped to 5.3 percent in this latest month.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Unemployment Report Misleading

Financial FAQs

Today’s lower than predicted payroll creation of 173,000 jobs doesn’t change my prediction of higher jobs growth ahead. My prediction yesterday was for 250,000 payroll jobs in August, but downward seasonal adjustments reduced payrolls by -800,000. In other words 800,000 jobs were stricken from the unadjusted numbers, because it’s the end of summer and lots of summer jobs normally disappear with the back-to-schoolers this month (but -800,000?..I don’t think so.).

In fact, -293,000 construction jobs were subtracted in the seasonal adjustment, because fewer jobs were added in past years. Yet real estate construction is booming in both residential and non-residential sectors this year, so instead of -10,000 fewer seasonally adjusted construction jobs in the report, later adjustments could add some of the -293,000 jobs back.

And confirming this are past months’ revisions. The pace of hiring in July and June was stronger than initially reported, according to a survey of business establishments (i.e., the payroll survey). The Labor Department said 245,000 new jobs were created in July instead of 215,000. June’s gain was revised up to 245,000 from 231,000 for a total of 44,000 jobs added back from the seasonal adjustment figure.

Graph: Marketwatch

The good news was that governments mostly at the local level added 33,000 payroll jobs, and wages are rising. The nation’s unemployment rate fell to 5.1 percent from 5.3 percent, marking the lowest level since April 2008 just as the Great Recession was beginning.

The jobless rate is determined by a separate survey of households that showed a sharp 237,000 drop in the number of people who said they were unemployed. Only a smattering of people dropped out of the labor force.

The improvement in the labor market also appears to be forcing more companies to increase pay to attract or maintain workers. The average hourly wage paid to American workers rose 8 cents, or 0.3 percent, in August to $25.09 an hour. From August 2014 to August 2015 hourly wages rose 2.2 percent, matching the best gain of the past four years.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Will Have Jobs This Year?

Popular Economic Weekly

Today’s ADP monthly private payroll report hints at what will happen with Friday’s ‘official’ nonfarm Labor Department unemployment report. ADP sees a slowing in job growth for January, to a lower-than-expected 213,000 for private payrolls and against ADP's upwardly revised 253,000 for December (initial estimate 241,000). Turning to government Labor Dept. data, the corresponding Econoday consensus for Friday's jobs report is 229,000 vs December's 240,000.

Graph: Econoday

Some drop in midwinter payrolls is expected, but where are the strengths and weaknesses? Companies in the U.S. service sector grew slightly faster in January, but they also cut back on the number of people they hired, according to survey of senior executives. A similar ISM gauge for manufacturing sector employment also declined in January, slipping to 54.1 percent from 56 percent.

The two ISM employment indexes are generally a good indicator of trends in the U.S. labor market. Even though both were positive in January, they point to somewhat slower job growth in the first month of 2015.

Among the goods-producing sector, there were 48,000 new construction jobs in December’s payroll report, with Health care and social assistance the second-highest job total. Construction payrolls are up 677,000 from their lows in 2010, but still 1.62 million below its 2006 high during the housing bubble.

So if interest rates remain at their record lows, real estate construction jobs may continue to expand.  Some 215,000 construction jobs were added in 2014, but total is still 1.6m below 2005 levels at height of the housing bubble. 

The apparent slowdown in hiring among service and manufacturing companies at the start of a new year could be a hint that the U.S. job creation in January will fall short of December’s 252,000 mark, as we said. The Institute for Supply Management said its nonmanufacturing index edged up to 56.7 percent in January from 56.5 percent in December. Readings over 50 percent signal that more businesses are expanding instead of contracting.

The good news is that new orders remained very healthy. The index measuring fresh demand rose to 59.5 percent and remained close to a post-recession high. On the downside, the employment gauge fell 4.1 points to 51.6 percent, marking the lowest level in 11 months. It was also the second worst reading in 20 months.

The 213,000 increase for January ADP payrolls is the lowest since September which was also 213,000. Increases in ADP's data from October to December averaged 257,000. By industries, ADP reports the largest percentage gain for January comes from construction, up 0.3 percent or 18,000 jobs (vs. 48,000 in BLS Dec. report), and the lowest from manufacturing, up 0.1 percent or 14,000 jobs, and financial activities, also up 0.1 percent or 10,000 jobs.

So continued health of the housing sector will be key to higher economic growth in 2015.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Employment Up, Interest Rates Falling Again

Popular Economics Weekly

We are still in the Goldilocks economy—it’s not too hot or too cold. In fact, there is enough geopolitical unrest (now it’s the Hong Kong youth protests against China’s hardliners) to drive down interest rates, and boost U.S. growth. We seem to be the island of calm in a world of storms, where investors are looking for safe havens.

The Automatic Data Processing (ADP) report just out showed private sector payroll employment increased by 213,000 jobs from August to September according to the August ADP National Employment Report. This is the precursor to this Friday’s Bureau of Labor Statistics ‘official’ September unemployment report for both private and public employment, which is expected to be in the same range.

Mark Zandi, chief economist of Moody’s Analytics that puts out the report, said, "Job gains remain strong and steady. The pace of job growth has been remarkably similar for the past several years. Especially encouraging most recently is the increasingly broad base nature of those gains. Nearly all industries and companies of all sizes are adding consistently to payrolls.”

And initial jobless claims continue downward, another sign that the unemployment rate should fall further tomorrow. There are fewer and fewer workers drawing unemployment benefits which points solidly at improvement underway in the labor market. Initial claims fell 8,000 in the September 27 week to 287,000, pulling down the 4-week average by a sizable 4,250 to 294,750 which is nearly 10,000 below the month-ago comparison.

Graph: Econoday

This is while interest rates are plunging due to investor flight-to-quality from the worldwide unrest. Conforming 30-year fixed rates are back down to 3.625 percent for a 1 pt. origination fee, 3.75 percent for 0 pts. in origination fees.

It may bring more of the record millennial generation of echo boomers (i.e., children of baby boomers) that outnumber their baby boomer parents into the housing market.

Marketwatch’s Amy Hoak, for one, believes this will happen sooner. Reporting on a National Association of Business Economist conference, she said,“In August 2014, only 29 percent of all buyers of existing homes were first-timers, according to National Association of Realtors data. For comparison, between October 2008 and October 2010, an average 41 percent of all buyers of existing homes were first-timers, David Crowe, chief economist for the National Association of Home Builders, pointed out during the panel discussion.

Still, the purchase activity of home buyers younger than 30 who bought with a mortgage (with the intent to live in the home) rose 8 percent, year over year, in 2012, according to a Zelman & Associates analysis. Purchase activity for this group rose 10 percent, year over year, in 2013. And purchase activity rose 19 percent, year over year, in both 2012 and 2013 for those between the ages of 30 and 39.

The key will be an improving rate of household formation for the millennials.

Graph: Business Insider

The improving labor market is helping U.S. household formation among young adults, according to Michael Gapen at Barclays. The employment-to-population ratio for 16-24-year-olds has climbed to 47.7 percent in May, from an average of 46.5 percent in 2013.

In particular, data from the Current Population Survey, which includes extensive information on both the number and characteristics of US households over time, suggest that more young adults are now finding it feasible to move out, said Gapen.

While the employment-to-population ratio for those in the 25-34 bracket has also ticked up, they are already less likely to live at home with their parents. "Only 18.8 percent and 8.9 percent of 25-29 year olds and 30-34 year olds, respectively, live with parents," writes Gapen.

In 2013, 55.3 percent of 18-24-year-olds lived at home, compared with 56.2 percent in 2012. Since there were estimated to be 30 million 18-24-year-olds in the U.S. last year, according to Current Population Survey estimates, the one percentage point decline suggests that 300,000 young adults were looking to move out.

Tomorrow’s BLS unemployment report should tell us more, but the youngest adults look like they are ready to be on their own.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Labor’s Day Not Celebrated?

Financial FAQs

It looked like August’s unemployment report would celebrate this year’s Labor Day in a big way. We know it because most employment indicators point to many more jobs this year that also pay more. Starting with the August ADP survey, the estimate for private payroll growth is 204,000, whereas predictions for the Labor Department’s report was 230,000 nonfarm payroll jobs, with most of those jobs in the higher paying Professional Services category (up 160,000 in August, according to ADP).

But, alas, today’s Labor Department report showed just 142,000 net nonfarm payroll jobs created, far below the estimates, while the unemployment rate barely fell to 6.15 percent. But stay tuned for revisions, as the seasonal adjustments were draconian (payrolls rose 327,000 July-August before seasonal adjustment), so the ADP report may turn out to be a more accurate portrayal of August employment. And monthly payrolls have increased to 215,000 in 2014, vs. 194,000 in 2013 on average.

Graph: Calculated Risk

Then there is the best predictor of employment. The ISM Purchasing Manager’s service industry report registered 59.6 percent in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in the Non-Manufacturing sector, which is the largest business sector. The August reading of 59.6 percent is the highest for the composite index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6 percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65 percent.

Graph: Calculated Risk

The New Orders Index registered 63.8 percent, 1.1 percentage points lower than the reading of 64.9 percent registered in July. The Employment Index increased 1.1 percentage points to 57.1 percent from the July reading of 56 percent and indicates growth for the sixth consecutive month.

And manufacturing growth is very strong based on the ISM manufacturing index where the composite index jumped to 59.0 from 57.1 in July, which also means more job creation. New orders headline August's strength, rising to an exceptional 66.7 vs an already very strong 63.4 in July. Production is at 64.5, vs July 61.2, with employment steady and strong at 58.1 vs 58.2.

Graph: Calculated Risk

Lastly, the Labor Department’s latest JOLTS report of job Quits and Hirings is telling us the number of job openings continues to grow. Jobs openings (yellow line in graph) increased in June to 4.671 million from 4.577 million in May and are up 18 percent year-over-year compared to June 2013. The number of Hires (blue line) rose to 4.8 million from 4.7 million, the highest since 2006.

We therefore see a falling unemployment rate for the rest of this year. It could be as low as 5.5 percent come December, as more return to the workforce. This is turn will continue to boost incomes and so economic growth, as consumers are able to spend more. This is a terrific way to celebrate this year’s Labor Day. .

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Jobs Key to 2012 Election

Popular Economics Weekly

We know what will win or lose the 2012 Presidential election—jobs. Will enough jobs be created to give Obama a second term? Or, will enough independent voters change horses (to elephants) and become Republicans, because not enough jobs were created? The polls aren’t clear on this. The Pollster Gallup, for one, believes that Obama will be reelected if current job creation trends continue.

For starters, Gallup believes March’s unemployment rate will decline to a seasonally adjusted 8.1 percent. Gallup’s Job Creation Index reported that March’s four-percentage-point increase is the largest one-month jump in the index that Gallup has recorded since instituting the measure in 2008..

Graph: Econoday

The monthly ADP private payroll survey is also just out, which closely tracks the BLS unemployment survey out tomorrow, also shows strength with some 209,000 jobs created in March. And ADP revised February upward from 216,000 to 230,000, so March’s number may be low. Economists’ consensus for the Labor Department’s employment report is that up to 230,000 public and private payroll jobs were created in March, and the unemployment rate will drop from 8.3 to 8.2 percent.

Graph: Econoday

There are still questions whether overall economic growth can top last year, which had bottomed out for the second time in Q1 2011, but has risen steadily since then. For its final estimate, the Commerce Department kept fourth quarter GDP growth at 3.0 percent, matching the second estimate for the overall number.  The latest quarter was stronger than the 1.8 percent rise in the third quarter.

Economists are now saying that we might see slightly higher average growth in 2012—maybe averaging 2.5 percent. Europe, which absorbs some 25 percent of U.S. imports is the main reason for uncertainty. Another worry is domestic wages and salaries, which have been rising approximately 1 percent annually after inflation of late, but isn’t enough for robust growth. Households lost some 6 percent of incomes from 2000-08, so they have a lot to make up.

Graph: Econoday

Personal spending seems to be also increasing along with GDP growth, particularly retail sales. Spending on all items is up 4 percent annually.

Graph: Econoday

Very good news was that both the industrial and service sector economies have been expanding for 27 months. This will also give a boost to GDP growth this year, with its employment index near the post-recession high, another reason to be optimistic about job creation this year.

Harlan Green © 2012

Consumers Feel Better

Popular Economics Weekly

Black Friday, or the day after Thanksgiving, was an eye-opener. Sales jumped 7 percent, a record, and Monday’s cyber-sales followed its lead. How can consumers be spending so much with incomes that aren’t rising as much?

One clue is that consumers have paid down so much debt, while disposable income, as well as wages and salaries, have been growing at 2 percent—not great, but enough to keep things bubbling. In fact, it’s been enough to boost the Conference Board’s consumer confidence survey, at least, about future conditions. For instance, those seeing better job prospects in 6 months increased from 5.8 to 12.9 percent, while the proportion that sees jobs as hard to find dropped from 42.1 to 24.1 percent.

Graph: Inside Debt

Consumer confidence has surged this month, in other words, with improvement centered in employment. The Conference Board's measure jumped more than 15 points to 56.0 from an upward revised 40.9 in October. November is the best reading since the debt-ceiling debacle and cut of the US credit rating in August.

This is while consumer credit expanded $7.4 billion in September benefiting once again from strength in nonrevolving credit. Nonrevolving credit outstanding, reflecting strong vehicle sales, rose $8.0 billion in the month to $1.66 trillion.

September brings in third quarter data which shows consumer credit expanding at a 1.6 percent annual rate, down from the second-quarter rate of 3.5 percent. Revolving credit during the quarter contracted at a 3.2 percent annual rate, more than reversing the second-quarter rate of plus 1.5 percent, said Econoday.

Another eye-opener was the surge in ADP private payrolls employment. ADP today reported that employment in the U.S. nonfarm private business sector increased by 206,000 from October to November on a seasonally adjusted basis. The estimated advance in employment from September to October was revised up to 130,000 from the initially reported 110,000. The increase in November was the largest monthly gain since last December and nearly twice the average monthly gain since May when employment decelerated sharply.

So, can it be true that consumers’ optimism is well-grounded? The Conference Board’s survey said those saying jobs are currently hard to get fell nearly five percentage points to 42.1 percent. Another key reading is a sharp improvement in income expectations over the next six months with more, 14.9 percent, seeing an increase and fewer, 13.8 percent, seeing a decrease. This is the first time since April that optimists have outnumbered pessimists.

Other positives in today's report include an improvement in buying plans for both homes and appliances and a three percentage point decline in 12-month inflation expectations to 5.5 percent. It is of course the holiday season when shoppers like to shop, but this could be a turning point. Optimism leads to increased consumer spending, and we know it is consumer spending that drives economic growth.

Harlan Green © 2011