by Bill McBride on 11/02/2012 11:05:00 AM
Friday, November 02, 2012
This was another encouraging employment report. The 171,000 payroll jobs added in October, plus the 84,000 in upward revisions to the August and September reports, suggests decent job growth recently.
Some of this reported increase might be related to distorted seasonal factors (distorted by the severe recession). This was the third year in a row with weaker payroll growth in the summer, and it might be helpful to look at the year-over-year growth (year-over-year, payroll has increased close to 2 million jobs).
In a recent post, I highlighted Two Reasons to expect Economic Growth to Increase. The first reason was that we are nearing the end of the state and local government layoffs. Recent reports suggests we may be near the bottom (last graph).
The second reason was a pickup in residential investment. This report showed an increase of 17 thousand construction jobs, however I think the BLS is under counting construction jobs at the turn. The preliminary benchmark revision showed an upward revision of 386,000 payroll jobs as of March (this is an annual revision bench marked to state tax records). A fairly large portion of the upward revision was for construction workers (85,000 more jobs added), and I suspect that the BLS statistical model that estimates new company formation (the Birth/Death model) is currently underestimating the formation of small construction companies.
Not all the news is good. U-6, an alternate measure of unemployment, only declined slightly to 14.6%. The average workweek was unchanged and average hourly earnings decreased slightly. "In October, the average workweek for all employees on private nonfarm payrolls was 34.4 hours for the fourth consecutive month. ... In October, average hourly earnings for all employees on private nonfarm payrolls edged down by 1 cent to $23.58. Over the past 12 months, average hourly earnings have risen by 1.6 percent. This is sluggish earnings growth.
The economy has only added 1.55 million private sector payroll jobs over the first nine months of the year. At this pace, the economy would only add 1.9 million private sector jobs in 2012; less than the 2.1 million added in 2011.
Overall this employment report was an improvement over recent reports, especially with the upward revisions. Here are a few more graphs...
Employment-Population Ratio, 25 to 54 years old
Click on graph for larger image.
Since the participation rate has declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.
In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.
This ratio should probably move close to 80% as the economy recovers. The ratio was unchanged in October at 76.0%, the highest level since early 2009 - but there is still a long ways to go.
Percent Job Losses During Recessions
This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.
In the earlier post, the graph showed the job losses aligned at the start of the employment recession.
Part Time for Economic Reasons
From the BLS report:
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 269,000 to 8.3 million in October, partially offsetting an increase of 582,000 in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.The number of part time workers declined in October to 8.34 millon from 8.61 million in September.
These workers are included in the alternate measure of labor underutilization (U-6) that declined to 14.6% in October.
Unemployed over 26 Weeks
This graph shows the number of workers unemployed for 27 weeks or more.
According to the BLS, there are 5.00 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 4.84 million in September. This is generally trending down, but is still very high. Long term unemployment remains one of the key labor problems in the US.
State and Local Government
This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011. So far in 2012, state and local governments have actually added a few jobs, although state and local government fell by 7,000 in October.
Note: The dashed line shows an estimate including the benchmark revision.
It appears most of the state and local government layoffs are over, however the Federal government layoffs are ongoing. Overall government employment has seen an unprecedented decline over the last 3+ years (not seen since the Depression).
Overall this was a somewhat encouraging report.