by Calculated Risk on 9/05/2014 09:50:00 AM

Earlier: August Employment Report: 142,000 Jobs, 6.1% Unemployment Rate

Although the headline number and revisions were disappointing, this is just one month of data and historically the employment report is "noisy".

 There were some positives in the report: the unemployment rate declined to 6.1%, 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, the number of long term unemployed declined to the lowest level since January 2009 - and payroll growth is still on pace to be the best year since 1999.

At the current pace (through August), the economy will add 2.58 million jobs this year (2.52 million private sector jobs). Right now 2014 is still on pace to be the best year for both total and private sector job growth since 1999.

Although wage growth is still subdued, it appears wage growth has picked up a little recently. From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents in August to $24.53. Over the year, average hourly earnings have risen by 2.1 percent."  With the unemployment rate at 6.1%, 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 numbers:

Total employment increased 142,000 from July to August, and is now 753,000 above the previous peak.  Total employment is up 9.463 million from the employment recession low.

Private payroll employment increased 134,000 from July to August, and private employment is now 1,244,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Private employment is up 10.03 million from the low.

Through the first eight months of 2014, the economy has added 1,723,000 payroll jobs - up from 1,572,000 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

Since 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 has mostly moved sideways (with a downward drift started around '00) - and with ups and downs related to the business cycle.

The 25 to 54 participation rate increased in August to 81.1% from 80.8% in July, and the 25 to 54 employment population ratio increased to 76.8% from 76.7%.  As the recovery continues, I expect the participation rate for this group to increase - although the participation rate has been trending down for this group since the '90s.

Year-over-year Change in Employment

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

In August, the year-over-year change was 2.482 million jobs, and it generally appears the pace of hiring is increasing.

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

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) was little changed in August at 7.3 million. 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 persons working part time for economic reasons decreased in August to 7.277 million from 7.511 million in July.  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 12.0% in August from 12.2% in July.

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

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.963 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.155 in July. This is generally trending down, but is still very high.

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

State and Local Government

This 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 August 2014, state and local governments added 5,000 jobs.  State and local government employment is now up 123,000 from the bottom, but still 621,000 below the peak.

It is pretty clear that state and local employment is now increasing.  Federal government layoffs have slowed (payroll increased slightly in August), but Federal employment is still down 19,000 for the year.

by Calculated Risk on 9/05/2014 08:30:00 AM

From the BLS:

Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today.
...
The change in total nonfarm payroll employment for June was revised from +298,000 to +267,000, and the change for July was revised from +209,000 to +212,000. With these revisions, employment gains in June and July combined were 28,000 less than previously reported.

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes).

Employment is now up 2.48 million year-over-year.

Total employment is now 753 thousand above the pre-recession peak.

The second graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate decreased in August to 62.8% from 62.9% in July. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics.

The participation rate has mostly moved sideways all year.

The Employment-Population ratio was unchanged at 59.0% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The third graph shows the unemployment rate.

The unemployment rate decreased in August to 6.1%.

This was below expectations, and the revisions to prior months were negative 28,000.

I'll have much more later ...

by Calculated Risk on 9/04/2014 09:36:00 PM

Friday:
• At 8:30 AM, the Employment Report for August. The consensus is for an increase of 230,000 non-farm payroll jobs added in August, up from the 209,000 non-farm payroll jobs added in July. The consensus is for the unemployment rate to decrease to 6.1% in August. As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should eventually start to pickup.

From Nick Timiraos at the WSJ: Things to Watch in Friday’s Jobs Report

Any pickup in wages would provide a concrete sign of firming in the labor market, since few measures reflect the health of the job market like the price of labor. Average hourly wages rose just 1 cent in July to $24.45, an increase of 2% from a year earlier and the 60th straight month that year-on-year hourly wage growth has stayed below 2.5%. Before the recession, growth routinely exceeded 3%.

Also keep an eye on a change in the work week, which rose 0.3% in July from June, the first increase since April. Average weekly earnings, at $843.53, rose 2.3% from a year earlier in July.

by Calculated Risk on 9/04/2014 03:31:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for August. The consensus, according to Bloomberg, is for an increase of 230,000 non-farm payroll jobs in August (range of estimates between 195,000 and 279,000), and for the unemployment rate to decline to 6.1% from 6.2% in July.

Here is a summary of recent data:

• The ADP employment report showed an increase of 204,000 private sector payroll jobs in August. This was below expectations of 213,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly below expectations.

• The ISM manufacturing employment index decreased slightly in August to 58.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 25,000 in August. The ADP report indicated a 23,000 increase for manufacturing jobs in August.

The ISM non-manufacturing employment index increased in August to 57.1%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 260,000 in August.

Combined, the ISM surveys suggest about 285,000 payroll jobs added in August (note that the ISM diffusion indexes are based on number of firms, not employees - and the timing is different).

• Initial weekly unemployment claims averaged close to 300,000 in August, down from 302,000 in July. For the BLS reference week (includes the 12th of the month), initial claims were at 299,000; this was down from 303,000 during the reference week in June.

The slightly lower reference week reading suggests slightly fewer layoffs in August than in July.

• The final August Reuters / University of Michigan consumer sentiment index increased to 82.5 from the July reading of 81.8. This is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 0.01% increase in small business employment in August (hours worked increase sharply in the Intuit index).

• Conclusion: The ADP report was lower in August than in July - and slightly below forecasts.  The ISM indexes were strong, and suggest hiring above the forecasts. Weekly unemployment claims were at the lowest level during the reference period in a number of years. However the Intuit small business index showed less hiring in August.

There is always some randomness to the employment report, but I expect the BLS will report over the consensus of 230,000 nonfarm payrolls jobs added in August. 

by Calculated Risk on 9/04/2014 12:25:00 PM

Earlier the Department of Commerce reported:

[T]otal July exports of $198.0 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.5 billion, down from $40.8 billion in June, revised. July exports were $1.8 billion more than June exports of $196.2 billion. July imports were $1.6 billion more than June imports of $237.0 billion.

The trade deficit was smaller than the consensus forecast of $42.7 billion and the deficit was revised down for Q1 and Q2.

The first graph shows the monthly U.S. exports and imports in dollars through July 2014.

Click on graph for larger image.

Imports and exports increased in July.  

Exports are 19% above the pre-recession peak and up 4% compared to July 2013; imports are about 3% above the pre-recession peak, and up about 4% compared to July 2013. 

The second graph shows the U.S. trade deficit, with and without petroleum, through June.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $97.81 in July, up from $96.41 in June, and down up $97.07 in July 2013.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China increased to $30.9 billion in July, from $30.1 billion in July 2013.

The trade deficit was revised down (exports up, imports down) for the previous six months.