Thursday, January 02, 2014

Question #2 for 2014: How many payroll jobs will be added in 2014?

by Bill McBride on 1/02/2014 01:45:00 PM

Note: Near the beginning of each year, I find it useful to jot down a few thoughts on how I expect the economy to perform. This isn't to test my forecasting skills - sometimes I learn more when I miss a forecast (As an example, I've spent a significant amount of time looking at the participation rate and demographics since I've been overly pessimistic on the unemployment rate the last few years).

Earlier I posted some questions for this year: Ten Economic Questions for 2014.

Here is a review of the Ten Economic Questions for 2013.

2) Employment: How many payroll jobs will be added in 2014? Will we finally see some pickup over the approximately 2.1 to 2.3 million job creation rate of 2011, 2012, and 2013?

First, here is a table of the annual change in total nonfarm and private sector payrolls jobs since 1999.  The last three years have been near the best since 1999 (2005 was the best year for total nonfarm, and 2011 the best for private jobs).

It is possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

Change in Payroll Jobs per Year (000s)
 Total, NonfarmPrivate
19993,1702,709
20001,9441,680
2001-1,757-2,308
2002-532-765
200362104
20042,0191,872
20052,4842,298
20062,0711,862
20071,115827
2008-3,617-3,797
2009-5,052-4,976
20101,0221,235
20112,1032,420
20122,1932,269
201312,2932,315
1 2013 is 12 month change ended in November.


For the last couple of years, I've been hammering on two key positive themes: 1) the pickup in residential investment (RI), and 2) the end of state and local government layoffs. Both of these will be positive for employment again in 2014 (there seems to be a lag between increases in RI and employment, and I expect a larger increase in residential construction employment in 2014).

The following table shows the annual change in State and Local government since 2008. The four years of declining employment ended in 2008.  Note: The Federal government layoffs are ongoing, and total government employment declined again in 2013. 

To put these declines in perspective, during the G.W. Bush years (2001 through 2008), state and local governments added about 215 thousand jobs each year.

State and Local Government, Annual Change in Payroll (000s)
YearState
Government
Local
Government
Total
200852109161
2009-40-88-128
2010-15-243-258
2011-94-192-286
2012-2-32-34
20131125870
1 2013 is 12 month change ended in November.

The second table shows the change in construction payrolls starting in 2006.

Construction Jobs (000s)
2006152
2007-195
2008-789
2009-1,051
2010-182
2011144
201299
20131178

It is important to note that construction includes residential, commercial and public. In 2013, residential spending was up solidly, but public construction commercial spending mostly moved sideways.  I expect all three categories to make positive contributions in 2014.

Both state and local government and construction hiring should improve further in 2014.  Federal layoffs will be a negative, but most sectors should be solid.  So my forecast is somewhat above the previous three years, and I expect gains of about 200,000 to 225,000 payroll jobs per month in 2014.

It is possible that 2014 will be the best year since 1999 (264 thousand total per month, 225 thousand private sector).  Maybe we will even party like it is 1999 (for employment growth).

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

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