Friday, October 03, 2014

Comments on Employment Report: Party Like it's 1999!

by Bill McBride on 10/03/2014 09:42:00 AM

Earlier: September Employment Report: 248,000 Jobs, 5.9% Unemployment Rate

This was a solid report with 248,000 jobs added and combined upward revisions to July and August of 69,000. As always we shouldn't read too much into one month of data, but at the current pace (through September), the economy will add 2.72 million jobs this year (2.64 million private sector jobs). Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999.

A few other positives:  the unemployment rate declined to 5.9% (the lowest level since July 2008), U-6 (an alternative measure for labor underutilization) was at the lowest level since 2008, the number of part time workers for economic reasons declined slightly (lowest since October 2008), and the number of long term unemployed declined to the lowest level since January 2009.

Unfortunately wage growth is still subdued.   From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, changed little in September (-1 cent). Over the year, average hourly earnings have risen by 2.0 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67."

With the unemployment rate at 5.9%, there is still little upward pressure on wages. Wages should pick up as the unemployment rate falls over the next couple of years, but with the currently low inflation and little wage pressure, the Fed will likely remain patient.

A few more numbers:

Total employment increased 248,000 from August to September and is now 1.07 million above the previous peak.  Total employment is up 9.78 million from the employment recession low.

Private payroll employment increased 236,000 from August to September, and private employment is now 1,547,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Private employment is up 10.34 million from the low.

Through the first nine months of 2014, the economy has added 2,040,000 payroll jobs - up from 1,736,000 added during the same period in 2013.   My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year.  That still looks about right.

Employment-Population Ratio, 25 to 54 years old

Employment Population Ratio, 25 to 54Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) 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 participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate decreased in September to 80.7% from 81.1% in August, and the 25 to 54 employment population ratio decreased to 76.7% from 76.8%.  As the recovery continues, I expect the participation rate for this group to increase a little - although the participation rate has been trending down for this group since the late '90s.

Year-over-year Change in Employment

Year-over-year change employmentThis graph shows the year-over-year change in total non-farm employment since 1968.

In September, the year-over-year change was 2.635 million jobs, and it appears the pace of hiring is increasing.

Right now it looks like 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in September at 7.1 million. These individuals, who would have preferred full-time employment, 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 persons working part time for economic reasons decreased in September to 7.103 million from 7.277 million in August.  This suggests significantly slack still in the labor market.  These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 11.8% in September from 12.0% in August.

This is the lowest level for U-6 since October 2008.

Unemployed over 26 Weeks

Unemployed Over 26 Weeks This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.954 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 2.963 in August. This is trending down, but is still very high.

This is the lowest level for long term unemployed since January 2009.

State and Local Government

State and Local GovernmentThis graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)

In September 2014, state and local governments added 14,000 jobs.  State and local government employment is now up 143,000 from the bottom, but still 601,000 below the peak.

Clearly state and local employment is now increasing.  And Federal government layoffs have slowed (payroll decreased by 2 thousand in September), but Federal employment is still down 25,000 for the year.