Employment Situation, October 2016

The Bureau of Labor Statistics of the Labor Department issued its monthly Employment Situation earlier today.  The results were not spectacular, but they were good:

–the economy added +161,000 new jobs last month

–revisions to the prior two months’ figures were both positive, totaling +44,000 positions.

Nothing in this to derail the Fed from raising the Fed Funds rate next month.

wage gains

Average hourly non-farm wages in the US were $25.92 in October.  That’s $0.10/hr more than in September and $.18 more than in August.  This doesn’t sound like much.  But the year-on-year growth in wages over the past year has been $.71/hr, which is a wage growth rate of 2.8%.  If we were to annualize the results of the past two months–not a calculation you’d want to bet the farm on–the growth rate is 4.2%.

Maybe too preliminary, but also maybe an early warning of rising wage pressure in the US.  The importance of that is that we would have (finally) reached full employment–meaning also that the Fed switching to rate-raising mode is at best timely.  At worst, it would mean that the Fed is at least a little late to the party.

Of course, given the scary example of Japan repeatedly tightening policy prematurely and snuffing out economic rebounds over the past quarter-century, the Fed has from the outset deliberately decided that later is better than sooner.  Nevertheless, further wage gains will translate into more aggressive Fed tightening moves.













































US wage growth and lower oil prices

For the past year or so, income for low-paid workers has been growing steadily at about a 4% annual rate, double the speed at which income has been expanding for workers in general.  In addition, it seems to me that low-income workers benefit the most, in percentage terms, from the fall in energy prices.

This is not to say that low-income workers are exactly feeling flush.  But in incremental terms, they’re becoming better off at greater speed than their high-income counterparts.

In addition, many of the firms patronized by the wealthy, especially luxury goods purveyors, are international concerns exposed to things like the ongoing shift in China’s spending away from Western goods to domestic, as well as the lower value in dollars of their foreign sales.

Both trends suggest a shift in Consumer Discretionary exposure away from large multinationals and toward smaller, US-focused firms that cater to the man in the street.  The trick, though, is to find companies where the benefit from higher sales is greater than the increase in the wage bill for lower-income employees.  TGT, anyone?

Georgetown: Good Jobs Are Back

Georgetown University’s Center on Education and the Workforce published an interesting analysis on the growth of employment during recovery from the recent recession.

The report counters what it describes as media portrayals of the recovery as being built on the creation of low-playing, low-skilled, benefitless, no-advancement positions as, say, baristas, Uber drivers and hamburger flippers.  Georgetown points to both the New York Times and the Wall Street Journal as among the culprits, citing articles written from 2012-15.  While this characterization may have been true in 2008-2009, the opposite has been the case during the five years since.

Over the past half-decade, job growth has been driven by “good jobs,”  which Georgetown defines as being in the upper third of their occupations by median wages.  Such positions pay $53,000/ year, or 26% more than the median for all full-time workers.  86% of “good jobs” are full-time, 68% offer health care benefits and 61% an employer-sponsored retirement plan.  Such benefits are typically add 30% in ecnomic value in addition to wages.

How can the media have been so wrong?

It’s because reporters have examined employment data by industry–looking at the types of products and services provided–rather than by the position being filled.  In other words, the reporters ended up counting a software engineer, an accountant or a marketing executive hired by Starbucks as a barista.

Looking at positions instead of industries, paints a different picture.

“Good jobs” have accelerated sharply since 2010.  Comprising 2.9 million out of 6.6 million total new jobs, they are dominating the recovery.  There are more “good jobs,” and more low-paying ones, today than there were in 2008.  Middle-wage jobs, however, are still 900,000 below their pre-recession levels (no explanation given by Georgetown for this).


The Georgetown report also shows that from 2010 on, workforce participants without at least some college have actually lost jobs across all wage categories–high, average and low–even though employment was expanding rapidly.  There are 39,000 fewer workers in “good jobs” who have high school diplomas or less (during a period when 3.1 million net new employees were hired), 280,000 fewer in average-paying jobs (2.1 million hired), and 159,000 fewer in low-paying ones (1.9 million hired).  It’s unclear how much of this replacement is due to employees upgrading their credentials, how much to changes in the labor pool, how much to changes in hiring practices…  In addition, college graduates made up 97% of the “good job” hires, 62% of the average-job hires and 39% of the low-paying hires.


I’m mostly interested in the economic implications of the Georgetown study.  But I find the report’s comments (p. 6) on the implausibility of the media articles to be interesting, and a little disturbing, as well:

“We find these media stories to be counterintuitive because they disagree with the well-established cyclical patterns of economic behavior. The consensus among economic researchers is that the economy has seen a strong shift toward college-educated workers since the early 1980s. The long-term shift in hiring, the increased economic value added, and the wage premium of college workers have persisted and strengthened for more than 30 years in periods of both recession and recovery. If the reports that the economic recovery was only producing low-wage, low-skill college jobs were true, they would suggest a profound reversal of structural trends in technology and globalization in place for decades. This seems unlikely given the weight of continued evidence to the contrary.”

I read this paragraph as addressing the issue of whether reporters just wrote pieces off the top of their heads or whether they may have simply been repeating the results of interviews with informed sources in the world of economics or government.  Georgetown seems to be saying pretty strongly that no credible person could possibly have told them anything remotely like they were printing.





Employment Situation, July 2015

the report

At 8:30 am eastern time, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July 2015.

The figures, a gain of +215,000 jobs, all but 5,000 of them in the private sector, were virtually identical with the consensus estimates of domestic macroeconomists.  Revisions of prior months’ data were mildly positive–a total gain of another +14,000 jobs.

Wage gains continued at an unremarkable +2.1% year on year advance.  The unemployment rate remained steady at 5.3%, which is low by historical standards.


It seems to me that this report pretty much removes any doubt that the Fed will begin raising the Fed Funds rate next month.

As I’m writing this, financial markets seem to be taking the news in stride.  We’ll see more as the day progresses.

What this report reinforces, as have prior ES reports in 2014-15, is that the economy in the US is growing strongly enough to create jobs for all those leaving schools and entering the workforce for the first time, plus another one million or so positions a year to eat into the rolls of the unemployed.


worrying about productivity

getting GDP growth

Looking at GDP from a labor perspective, growth comes either from having more workers or from more productivity, that is, from workers creating more stuff per hour on the job.  (Yes, you can get more output by not letting workers go home and forcing them to work 100 hours a week.  But that’s not going to last long, so economists generally ignore this possibility.)

The trend growth rate of the population in the US is, depending on who we ask, somewhere between +.7% and +1.0% per year. For reasons best known to itself,  Congress spends an inordinately large amount of time, in my view, devising ways to keep a lid on this paltry number by prohibiting immigration.  So, as a practical matter, the only way to get GDP to expand in the US by more than 1% is through productivity growth.


The weird thing about productivity is that it’s a residual.  We don’t see it directly.  Productivity is a catchall term for the “extra” GDP that a country delivers above what can be explained by growth in the number of people employed.  Economists figure it’s the result of employers providing better machinery for workers to use, technological change, and improved education + on the job training.

Productivity peaked in the US shortly after the turn of the century at around +2% per year, accounting for the lion’s share of national GDP growth.  It has been falling steadily since.  Over the December 2014 and March 2015 quarters, productivity dipped into negative territory.  This is hopefully a statistical quirk and not the sudden onset of mass senior moments throughout the workplace.

why worry?

Over the long term, the disappearance of growth through productivity gains implies economic stagnation in the US.  (My personal view is that the productivity number are the aggregation of a highly productive tech-oriented sector and a low/no-productivity rest of us hobbled by a weak public education system   …but, as a practical matter, who knows?   By the way, productivity figures don’t include government.)

The more pressing issue is that no productivity gains means employers aren’t finding ways to make their employees create more output per hour worked.  That is, they have no way of offsetting  higher wages other than to try to pass costs on by raising prices.

the bottom line for investors

Conventional wisdom is that the Fed will take a long time to shift from extreme economic stimulation through emergency-low interest rates back to normality.  Both stock and bond prices also seem to me to have imbedded in them the idea that “normal” will be lower in nominal terms than it has been in the past.

A bout of inflation induced by rising wages could change that thinking in a heartbeat.

To be clear, dangerously accelerating inflation isn’t my base case for how the economy will play out.  And no one is thinking that the US will only grow at about 1% annually from now on.  All the more reason to keep a close eye on how productivity figures evolve.

the December 2014 Employment Situation

The Bureau of Labor Statistics, part of the Labor Department, published its monthly Employment Situation for December at 8:30am est.

The report continued the recent string of exceptionally strong results.  The economy added 252,000 new positions (240,000 in the private sector) during December, or +12,000 better than consensus estimates of a 240,000 jobs gain.

Revisions to the two prior months’ data were unusually good, as well.  In its initial update to November data, the BLS now says the US gained 353,000 new jobs that month, +32,000 more than initially thought–even though the initial November figures were a huge positive surprise.  The agency now puts October job gains at +261,000–a boost of another +18,000 positions over its November estimate.

The unemployment rate fell from 5.8% to 5.6%; the number of unemployed fell by 383,000.


No sign of wage increases yet.  Average hourly earnings (now $24.57 for private non-farm workers) are up by 1.7% year-on-year.  Hourly wages fell by a nickel in December, after rising by 6¢ in November.

No sign of net layoffs in energy-related industries, although it may be too soon for this to be happening.  Still, there are no signs that validate the (odd, to my mind) conclusions of statistically-driven economic researcher that a declining oil price is a harbinger of recession.




the November 2014 Employment Situation

the Employment Situation

The Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report at 8:30 this morning.  I had intended to igrnore the report and continue laying out my Strategy for stocks next year.  But the news is surprisingly good–despite the apparent indifference in futures markets as I’m writing this.

lots of new jobs

The economy added 321.000 new jobs in November, all but 7,000 of them in the private sector.  That’s way above the average jobs gain over the past year, as well as miles ahead of economists’ forecasts (which may say as much about the forecasts as about the economic reality).  In addition, revisions to the two prior months reported were also positive, totalling an extra 44,000 positions.  Final job gains for September stand at +271,000; the current October estimate is +243,000.

To put the figures in perspective, the economy needs to create 125,000 – 150,000 new jobs each month to absorb first-time job seekers leaving school.  Anything over that eats into long-term unemployment.  Over the past three months, then, close to half a million people have shifted from being unemployed to having work.


The unemployment rate remained at 5.8% despite the large job gains.  This is mostly, I think, because the workforce expanded by about a half million as better job prospects caused people who had given up the search for work starting to look again. That’s what usually happens.  At least some part, however, is due to the fact that job gains/losses and the unemployment rate are determined using two different surveys–and two different sets of data.


The latest JOLTS (Job Openings and Labor Turnover Survey) report, about a month ago, from the BLS offers similar encouragement.  There are now 4.7 million unfilled jobs in the economy.   More important, the quits rate–that is, the number of people voluntarily leaving their jobs, presumably for better employment elsewhere–is rising.  This is a sign that present jobholders have increasing confidence in their skills and employability.

economic ointment fly:  wage growth

The only fly in the employment ointment is that wages are still only rising at a 2% annual rate, or basically no growth in real (inflation-adjusted) terms.

From a stock market perspective, it’s hard to know if this is good or bad.  Higher wages would presumably mean more consumer spending and therefore accelerating earnings growth for publicly traded companies.  That’s a plus.  On the other hand, accelerating wage growth can be an early indicator of inflation to come–and might cause the Fed to speed up the pace at which it will be raising interest rates in 2015.  That would surely make the ride for stocks bumpier, and would most likely cause prices to decline.

My bottom line:  despite Wall Street’s current indifference, this report is surprisingly good news.

Back to strategy on Monday.