Employment Situation, August 2016

This morning at 8:30 edt the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation.  This was a so-so report.

The economy added +151,000 new jobs last month.  Revisions to the prior two months were -1,000, or insignificant.  Wages were up, but only slightly, maintaining their growth of about 2.4% annually.  Service industries continued to gain; manufacturing and construction were flattish.

The results did fall short of Wall Street economists’ estimates of a +181,000 advance, but to my mind this says more about the economists and the difficulty of forecasting the jobs figure precisely than it does about the jobs.

It there’s one thing I take from it, it’s that the period of turbocharged jobs gains–well over +200,000 a month–we were experiencing earlier in the year is now behind us.  If I were forced to attribute this relative slowdown to anything, it would be the strength of the dollar.

For me, the most curious thing about the report is that it appears to have sparked a rally on Wall Street, on the notion that this report makes it less likely that the Fed will raise interest rates later this month.  This makes little sense to me, although I’ll take an up day rather than a down one any time.  Personally, I think the Fed risks accusations of trying to influence the election if it acts before November, so not matter what its rhetoric it’s unlikely to move now.  Looking at the character of gaining stocks, it’s primarily smaller doing better than larger, something that mostly happens when rates are rising.

This is the first time in a long while I’ve been nonplussed by market movements.

 

Employment Situation, July 2016

This morning at 8:30 edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July.

The numbers were strong.

The economy created +255,000 new jobs last month.  Revisions to the prior two months’ data were also positive.  The very weak May figures that caused financial markets alarm bells to ring were bumped up from +11,000 new positions to +24,000; the extra-strong June results edged higher to +292,000 from +287,000.

The effect of this ES report, I think, is to dissipate all the concern about incipient economic weakness that caused the Fed to refrain from raising interest rates at its last two meetings.

Although I’ve never been a big fan of financial companies, traditional banking operations, where interest margins on loans have been severely squeezed by years of easy monetary policy, would seem to me to be the biggest beneficiaries of this development.  My guess is that the ES will also encourage the stock market to continue its drift away from mature cash-generative companies to more capital investment-intensive secular growth names.

Employment Situation for June 2016

Mutual funds on Monday.  Today’s post is about the blowout jobs number reported this morning.

At the usual time, 8:30 am edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report today.  In it, last month’s paltry +38,000 new jobs figure was revised down to +11,000.  But April’s number was revised up by an almost offsetting amount.  More importantly, June’s new hires were reported at a huge +287,000 new jobs.

The June report goes a long way toward convincing economists that the very poor jobs showing for May is a statistical quirk, not a signal of a major slowdown in the US economy.  …the Federal Reserve, too, which had cited the May figure  + possible fallout from Brexit as reasons to refrain from raising the Fed Funds interest rate as planned last month.

 

Pre-market reaction to the news was at first subdued, with S&P 500 futures trading just above breakeven immediately after the announcement.  But while I’ve been writing this, futures have improved to a gain of about 3/4 of a percent.

 

Wage gains, another aspect of the ES that investors have been looking hard at–for signs of incipient inflation, and therefore the need to hike interest rates more quickly to stave off excessive price level gains–were very small.  Over the past year, wages have risen at a 2.6% rate. That’s higher than the current inflation level, but not by much.

All in all, a comforting report.

the weak May Employment Situation report

the Employment Situation

Last Friday morning the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for May.

The numbers were weak.

–According to the ES, the economy gained a net +38,000 new jobs last month.  This compares with economists’ estimates of over 100,000.

–Revisions to the prior two months’ data were both negative, together totaling -59,000 positions.  So government estimates of the number of people at work in the country actually fell for the first time in a long while.

mitigating factors

specific

About 35,000 Verizon workers were on strike during the month, a walkout that has since been settled.  That number was a subtraction from the May total.

The winter was unusually mild in populated areas of the country.  This suggests that some seasonal workers normally hired in the spring went to work earlier in the year.  One economist I saw estimates that factor might have shifted +60,000 job gains away from May. This isn’t a huge comfort, however, since, if we believe this, it implies that the favorable employment figures from earlier in the year are a little suspect as well.

general

Each month well over 3 million Americans get new jobs and an almost equal number leave their employment. The monthly job gains/losses are the difference between these two large figures.  Because of this, Labor Department statisticians say the figures are only accurate +/- 100,000 jobs.  Of course, no one brings this up when the figures are unusually good.

implications

The S&P 500 fell about three-quarters of a percent on the news, before rallying to close down by 0.29%–meaning Wall Street (correctly, in my view) isn’t concerned.

The Fed?  I don’t think the ES will make any difference, although the coming rise in the Fed Funds interest rate may be postponed until next month.

 

 

 

 

employment and retirement

simple math about retirees in the US

Let’s suppose the average American goes to work full-time at age 20 and retires at age 65.  If employees are distributed equally by age, then 2.2% of the workforce reaches retirement each year.  We know the real percentage is higher than that at present because the Baby Boom makes up an unusually large portion of the population.

The workforce is about 155 million people.  Of that, 95%, or about 147 million, are employed.  If 2.2% of this total number retire each year, that’s 3.2 million jobs being opened, or about 270,000 per month.

That’s a far greater figure than the net new hiring being done in the US, as reported by the Labor Department.

This simple calculation already suggests that not every position vacated by a retiree is being filled and/or that people who in other times would be retiring are continuing to work.  Let’s put that aspect of the employment issue aside for today, though.

The point for today is that, however gradual, the retirement of the Baby Boom must be having a powerful effect on labor costs.

But what is that effect?

retirements and pay

A highly oversimplified example:

Let’s say a company has five employees.

#1, the oldest and longest tenured, makes $100,000 a year.

#2 makes $80,000

#3 makes $60,000

#4 makes $40,000

#5 makes $20,000.

The total payroll is $300,000 a year.

Suppose #1 retires and that each of the other employees is promoted one slot and awarded a $15,000 raise.

Assume, too, that a new #5 is hired right out of school for $20,000.  So #5 gets a job and everyone else gets a substantial raise.  A big boost for everyone’s economic health, except for the old #1.

The new company payroll looks like this:

#1 makes $95,000

#2 makes $75,000

#3 makes $55,000

#4 makes $35,000

new #5 makes $20,000.

The total is $280,000.  That’s 7% less than the company was paying out before. Average wages have dropped a lot, despite the fact that every employee is significantly better off.

If 2% of the company is retiring in a given year instead of 20%, and everything else is the same, then the overall drop in wages is 0.7%.  That’s probably much closer to the actual effect on national wages from retiring Boomers.

my thoughts

–During recessions, when people are afraid–and especially in a 401k retirement world–older workers tend to hang onto their jobs rather than retire.  When recovery begins, there tends to be a catch-up period when both “normal” retirees and those who have postponed retirement leave work.  This phenomenon depresses average wages more than usual and disguises the upward economic momentum that’s taking place.

For a plain vanilla recession, this downward wage pressure should begin to abate in year two of recovery.

We’re now deep into year seven after the worst of the last recession.  But the Fed seems to think that the cyclical depression of wages by retirements is still in full swing in the US now.  I’m not sure what to think.

–Our hypothetical retiring Boomer probably goes from earnings $100,000 a year to collecting Social Security of $20,000 + using income from accumulated savings/401k/IRA/pension of, say, $30,000.  No matter what the exact numbers are, this is a sharp downshift in purchasing power and in standard of living.

If the idea that Boomer retirements are currently accelerating is correct, this seems to me to tip the investment scales increasingly sharply away from Boomer spending and toward Millennials’.