Category Archives: employment

the weak May Employment Situation report

June 6, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , Leave a comment

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

April 5, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , 1 Comment

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’.

 

 

 

 

employment and the March 2016 jobs report

April 4, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , , 1 Comment

Last Friday, as usual, the Bureau of Labor Statistics of the Labor Department published its monthly Employment Situation for March 2016.  The report said the economy added 215,00o new positions last month.  Revisions to prior months’ data were insignificant a–a loss of -1,000 jobs.

Despite the continuing strong jobs creation, the unemployment rate ticked up slightly to (a still very favorable) 5% of the workforce.  In the past, that figure would be regarded as full employment. The 5% would be regarded as “frictional” unemployment, meaning it consists either of people who have quit their old job because they have a new one but are not starting right away, or of project workers who routinely have small gaps between jobs.

That would, in fact, be quite worrying, since wage inflation acceleration–and therefore overall inflation acceleration–would be imminent.

The financial markets have not been focused on the very low unemployment percentage, however.  They have been, and continue to be, worried about the lack of wage gains–which, they argue, is evidence of continuing slack in the labor market.

Two recent contrarian thoughts:

–some are saying that the uptick in the unemployment rate is (finally) evidence that disheartened workers who have long since left the workforce (by stopping looking for work) are beginning to think that getting a job is now possible and are re-entering the workforce.  So it’s an early sign of a significantly better tone to the labor market.

I think this is possible.  Good news, if so.  The only question I have is how it could have taken over six years since the economy bottomed for this to occur.

–the Fed is beginning to argue that wage gains are actually greater than corporate reporting would lead us to believe.  The idea is that older, higher-paid workers are retiring and effectively being replaced by younger, lower-paid new hires.  This is something that always happens in the early stages of economic recovery.  Again, the question remains why wage-flattening has been going on for well over half a decade.

More on this topic tomorrow.

 

the February 2016 Employment Situation

March 4, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , 1 Comment

The Bureau of Labor Statistics released its monthly Employment Situation report at 8:30est this morning.  The highlights:

–job gains for February came in at +242,000 new positions

–December and January figures were revised up a total of +30,000 jobs

–the unemployment rate remained steady at 4.9%

–wages, which had gained $.12 on a base of $25.26 per hour last month, fell by $.03 in February.  Although this is just one month, the figure threw some cold water on speculation generated by the strong January figure that wages–and therefore inflation–were finally beginning to rise at a more comfortable level after more than half a decade of mammoth monetary stimulation targeted in part at achieving this result.

All in all, good news.

Nevertheless, S&P futures, which spiked a bit on the announcement, are trading slightly below the pre-announcement level as I’m writing this.

mining

One figure that caught my eye was the situation for the mining industry (including oil and gas as well as metals).  Since the employment peak for the sector in September 2014, mining has lost a total of -171,00 positions, including -19,000 last month.  Despite this, the economy as a whole has created around 4 million new jobs over the same period. Yes, Texas, Oklahoma and North Dakota… have been hurt by the sharp decline in oil prices, and yes, the oilfield-related jobs typically pay very high wages.  But I continue to find it hard to figure where the evidence can be for the persistent belief on Wall Street that somehow the decline of the oil and gas producing industry offsets most of the benefit to everyone else of lower hydrocarbon prices.  that just can’t be the case.

another aside

Window 10 was doing a massive update to my laptop as the jobs report was being made public.  So I turned on the TV to hear the news.  My fingers skipped over Bloomberg on the remote and went to CNBC.  I guess I’ve begun to admit to myself how stunningly bad Bloomberg has become at delivering informed financial comment.  (I assume this is the result of a new management emphasis on physical appearance rather than brain power, but I don’t know.)

In any event, CNBC is now clearly better.  Making Andrew Ross Sorkin the chief moderator certainly helps.  Conferencing in qualified outsiders does, too.  I’ve never cared for the comic relief provided by Rick Santelli, though.  I  find it hard to tell how much he actually believes of the nonsense he spouts, and I find it vaguely offensive.  But this may be tongue in cheek that I just don’t get.

 

the January 2016 Employment Situation

February 5, 2016 By in employment, Employment Situation report, Uncategorized Tags: , , , , Leave a comment

Earlier this morning the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for January.

job growth

The ES indicates that the economy added a net 151,000 new jobs during the month.  That’s roughly the number needed on average to absorb new job entrants, and it’s around the figure being reported each month last summer.  However, it falls short of the mammoth job addition figures achieved over the prior four months.  And it’s around 40,000 less than the consensus of Wall Street economists.

Revisions of prior months’ data didn’t move the needle much, either.  The ES numbers for November were revised up from +252,000 new jobs to +280,000; those for December were revised down from +292,000 to +262,000.  That’s a net of -2,000.

wages

Wage growth might be a different story. Over the past year, average hourly wages grew by 2.5%, which is a little better than inflation but not terrific.  And it’s not really consistent with a low unemployment rate of around 5%.  For January, however, average hourly earnings rose by $.12 to $25.39.  Of course this is only one data point, but if sustained would amount to +5.7% annual growth.  This could be (stress on the could) an early indicator of rising wage inflation (the only kind that really counts in advanced economies).

market reaction

S&P futures immediately dropped from a slight positive to a small negative.  The dollar spiked up against the euro.  My guess is that these are just knee-jerk reactions.  If we want to make more of them than that, however, Wall Street’s read would seem to be that the US is finally starting to see strong real wage growth.  While that’s good for the economy, it also would mean less worry at the Fed about continuing to raise interest rates.  In early going, it would seem the latter is what traders have latched onto.

There’s certainly risk is extrapolating from one data point, especially one that has given false positive signals in the recent past.  Traders are likely judging that there’s little chance of the stock market running away to the upside, though, so there’s less risk to making the negative bet than would seem on the surface.

My reaction is that this is giving long term investors a chance to pick through the rubble to find cheap stocks with good long term prospects.