Employment Situation, July 2017

This morning the Bureau of Labor Statistics released the latest monthly installment of its Employment Situation report, a long-standing series that monitors the state of the labor market in the US.

The report, a compilation of data from a large number of employers around the country,  estimates that a total of +209,000 new jobs were created last month (I’ve corrected a typo from an earlier version of this post).  Revisions to the prior two months’ data added another +2,000 new positions to that.

The unemployment rate came in at an ultra-low 4.3% of the workforce.  This figure is in line with recent experience, but one which would traditionally be regarded as indicating full employment plus a lot (the idea being that there’s a certain level (4.5%?) of frictional unemployment, basically people quitting one job to take another but not having yet started).

 

In the past, reaching full employment has also made itself known by accelerating wage gains, as employers bid up the price of the additional workers they need and raise wages all around for existing employees to ward off job poaching from rivals.

In perhaps the most perplexing aspect of this recovery, however, there’s still no sign of wage acceleration.  Wages are rising by a tad more than inflation but the rate of growth has remained steady at about 2.5%/year for a long time.

Although the +220,000 figure is 20% higher than the consensus guess of Wall Street economists, the stock market is regarding the ES with a shrug of the shoulders.  Only a sharp uptick in wage growth will make an impact (probably negative, at least at first) on stocks and bonds from this point on.

 

Employment Situation, June 2017

The Bureau of Labor Statistics released its Employment Situation report for June this morning at 8:30 edt.  The report was a strong one, indicating that the economy added +222,000 new jobs during the month.

Revisions to the so-so reports of the prior two months (made as fuller information comes in to government statisticians from participating employers) were also strong, adding a total of +47,000 positions to the previously estimated gains of +174,000 new jobs for April and +138,000 for May.

The ES is having a positive impact on stock trading in New York today, partly because the numbers are good.  It’s also partly–maybe mostly–because the monthly employment report released by ADT a couple of days in advance of the ES, and which is designed to mimic the ES, reported +158,000 job additions, which was the weakest in that series for a considerable time.

If anything, the June ES gives more encouragement to the Fed to begin in the next month or two its unwinding of unconventional measures to keep long-term interest rates low.

More on this Monday.

 

Employment Situation, May 2017

As usual, at 8:30 edt this morning, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation.

The May results were ok, but not great.

The economy added 138,000 new jobs during the month, a reasonable number although one below recent reporting trends.  In addition, results for March and April were revised down by a total of 66,000.  Ouch!

Wage growth remains at an inflation-beating pace of +2.5% but continues to show none of the acceleration one might be hoping for,  given that the unemployment rate has fallen another notch to 4.3%.

my take

Let’s separate what’s going on from why it’s happening.

On the second question, I have inklings/prejudices but nothing that I’d care to act on.  My guess/fear is that jobs are being created, but in lower tax-rate foreign jurisdictions (meaning just about anywhere other than the US), and that machines are substituting for domestic labor, thereby keeping wages low.  If that were so, it would imply US employers believe President Trump won’t be able to advance his tax and infrastructure agenda.

But, really, who knows.

On the first, the signs are that after eight years, the US is finally at full employment again.  This would imply what other indicators seem to be showing–that’s there’s no reason to bet that there’ll be any “pent-up,” cyclically unfulfilled demand showing itself in surprisingly strong future consumer spending.

If so, the stock market should move away from cyclical ideas to secular growth and structural change beneficiaries.  In addition, overall annual upward movement in the broad indices should be limited to, at best, 1.5x the growth in nominal GDP.

The way I see things, this is the way Wall Street has been acting since early in 2017.  So this ES report is not new news.  Rather it’s confirmation of the direction the market has already recently taken.

 

 

Employment Situation, April 2017

Happy Cinco de Mayo!

I’ll finish my value investing comment on Monday.

This morning, as usual, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report.

The April ES revises down the weak March figures from +98,000 jobs to +79,000.  However, the April figures have bounced back to +211,000 new positions, well above the recent trend of about +175,000 monthly hires.  This development also suggests that March weakness was a result of unusually warm weather at the start of the year that pulled forward hiring normally done in early spring into late winter.

No sign of accelerating wage gains, though.  Salaries continue to rise at about a 2.5% annual rate.   That’s slightly above inflation.  But despite the unemployment at a 4.4% low, there’s no sign of labor-strapped companies raising the ante in bidding for new employees.  That has been typical behavior in past business cycles, and would create the rising inflation (healthy, at this juncture) the Fed is looking for as a signal to tighten money policy more quickly.

Why is this cycle different?

One plausible alternative is that employees are still scarred by the recession and are afraid to make large wage demands.  Another is that employers are replacing labor with capital, in the form of robots/computers.

 

 

Employment Situation, January 2017

This morning at 8:30 est, the Bureau of Labor Statistics of the Labor Department issued its monthly Employment Situation report for January 2017.

The important parts, in my view:

on the positive side

— the +227,000 new jobs added is an above recent trend figure

–the workforce expanded by around half a million people during January, implying that sa significant number of previously discouraged workers are resuming their search for employment

–wages are rising at a 2.5% annual rate.  Some have expressed disappointment that wages aren’t rising faster, pointing out that the ES estimate of wage gains was higher a month ago.  On the other hand, the overall trend is in the right direction and these numbers can be quirky month-to-month.

on the negative

–the situation for the long-term unemployed is little changed over the past year

—-The number of long-term unemployed (those out of work for 27 weeks or more) is down by about a quarter-million.  But it’s still 1.9 million people, and makes up about 25% of all unemployed

—-The number marginally attached to the workforce (meaning have looked for work sometime within the past year, but not within the last four weeks) is down by 15%.  But their number is still 1.8 million.  Of that figure, 532,000 are discouraged workers (people not looking for work because they think no one will hire them), the same as this time in 2016.

 

As I’m writing this, the reaction of Wall Street is to emphasize the positive.  However, as the presidential election results show, the economically left behind are increasingly making their voices heard demanding help.

 

 

Employment Situation, December 2016

The Bureau of Labor Statistics of the Labor Department issued its monthly Employment Situation  this morning at 8:30 est.

According to the release, the economy gained 156,000 new jobs in December, more than enough to absorb new entrants into the workforce.  Revisions to October figures were -7,000 jobs, to November’s, +26,000, meaning the net revision to the prior two months’ data was +19,000 new positions.

While this is a so-so result, we should consider how much may be due to random statistical variations in the data and, more importantly, how much comes from the difficulty employers are apparently having in finding qualified candidates who are currently unemployed.

More evidence that the latter is becoming a more significant issue comes from the rising trend in average hourly wages the BLS is also reporting.  for the 12 months ending in December, wages have been increasing at an inflation-beating 2.9% rate.  If we, methodologically incorrectly, take the December wage gains alone, the year on year increase is 4.6%.

The bottom line:  good news, and evidence the Fed will likely take as prompting it to raise the Fed Funds rate again sooner rather than later.

The Employment Situation, November 2016

The Bureau of Labor Statistics of the Labor Department released its monthly Employment  Situation report at 8:30 est this morning, as usual.

The results were good.  178,000 net new positions were filled during the month, which is right at the average monthly gain so far this year.  Net revisions were slightly negative, subtracting -2000 positions from prior months’ employment estimates.  The BLS also said wages made no upward progress during November, after having jumped a lot the month before.

The only out-of-the-ordinary figure was the unemployment rate, which fell to 4.6% from 4.9% in October.  We’ll likely find next month that the November figure comes from transitory statistical strangeness that will have already disappeared.

What to make of this ES?

Nothing, really.  In fact, I think that as stock market investors, we should no longer be monitoring the ES for signs of potential labor market weakness.  Instead, we should be on the lookout for indications of surprising strength, possibly in the number of new hires, but more likely in the rate of wage gains.

That’s because I think we’re well past the point where we’ve got to guard against economic weakness.  Instead, we’ve got to be alert for signs of the more likely threat–that the pace of interest rate rises will accelerate from the currently anticipated once-in-a-long-while pace..

The first step in adopting this new mindset, I think, is to consider what the endpoint for increases in the Fed Funds rate–and the resulting terminal interest rate point for 10-year Treasuries, which is the closer substitute for stocks in long-term investors’ portfolios–will be.

More on this topic on Monday.