by Calculated Risk on 12/08/2014 10:38:00 AM

By request, a few more employment graphs ...

Here are the previous posts on the employment report:

• November Employment Report: 321,000 Jobs, 5.8% Unemployment Rate
• Employment Report Comments: Best Year for Employment since the '90s

Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. 

The long term unemployed is just below 1.8% of the labor force - the lowest since January 2009 - however the number (and percent) of long term unemployed remains a serious problem.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment.

Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".

Construction Employment
This graph shows total construction employment as reported by the BLS (not just residential).

Since construction employment bottomed in January 2011, construction payrolls have increased by 677 thousand.

Diffusion Indexes
 The BLS diffusion index for total private employment was at 69.7 in November, up from 63.8 in October.

For manufacturing, the diffusion index was at 63.0, down from 64.2 in October.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.  Above 60 is very good, close to 70 is great.  From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Job growth was widespread in November - another good sign.

by Calculated Risk on 12/07/2014 08:22:00 PM

Monday:
• At 10:00 AM ET, the Fed will release the monthly Labor Market Conditions Index (LMCI).

Weekend:
• Schedule for Week of December 7th

• Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends

• The Future's so Bright ...

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are up slightly and DOW futures are also up slightly (fair value).

Oil prices were down over the last week with WTI futures at $65.84 per barrel and Brent at $69.07 per barrel.  A year ago, WTI was at $97, and Brent was at $112 - so prices are down 32% and 38% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.68 per gallon (down about 60 cents from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 12/07/2014 12:48:00 PM

For several years, I've been arguing that "most of the recent decline in the participation rate" was due to demographics and other long term structural trends (like more education).  Clearly this was an important issue because if most of the decline had been due to cyclical weakness, then we'd expect a significant increase in participation as the economy improved. If the decline was due to demographics and other long term trends, then the participation rate might keep falling (or flatten out for a period before declining again) as the economy improves.

Definitions from the BLS:

Labor force participation rate: The labor force as a percent of the civilian noninstitutional population.
Labor Force: The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.
Civilian noninstitutional population: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

Basically the labor force participation rate is the percent of people, 16 years and older, in the labor force (employed or unemployed).

Most of the recent research supports my view. As an example, from Federal Reserve researchers Stephanie Aaronson, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher L. Smith, and William Wascher: Labor Force Participation: Recent Developments and Future Prospects

The evidence we present in this paper suggests that much of the steep decline in the labor force participation rate since 2007 owes to ongoing structural influences that are pushing down the participation rate rather than a pronounced cyclical weakness related to potential jobseekers’ discouragement about the weak state of the labor market ...

In June, Dean Baker wrote: The Question on People Leaving the Labor Force is 41-Year-Olds, Not 61-Year-Olds

[T]he story of people leaving the labor force is not primarily one of older workers who are near retirement age, it is primarily a story of prime age workers. ...

It is difficult to envision any obvious reason why people in their prime working years would suddenly decide that they did not want to work other than the weakness of the labor market. Most of these workers will presumably come back into the labor market if they see opportunities for employment.

This brings up a few key points:

1) Analyzing and forecasting the labor force participation requires looking at a number of factors. Everyone is aware that there is a large cohort has moved into the 50 to 70 age group, and that that has pushing down the overall participation rate. Another large cohort has been moving into the 16 to 24 year old age group - and many in this cohort are staying in school (a long term trend that has accelerated recently) - and that is another key factor in the decline in the overall participation rate.

2) But there are other long term trends. One of these trends is for a decline in the participation rate for prime working age men (25 to 54 years old).

3) Although Dr. Baker argues that the decline in prime working age workers is due to "weakness of the labor market", this decline was happening long before the Great Recession. For some reasons, see: Possible Reasons for the Decline in Prime-Working Age Men Labor Force Participation and on demographics from researchers at the Atlanta Fed: "Reasons for the Decline in Prime-Age Labor Force Participation"

Lets take a look at Dean Bakers "41-Year-Olds". I used the BLS data on 40 to 44 year old men (only available Not Seasonally Adjusted since 1976). I choose men only to simplify.

Click on graph for larger image.

This graph shows the 40 to 44 year old men participation rate since 1976 (note the scale doesn't start at zero to better show the change).

There is a clear downward trend, and a researcher looking at this trend in the year 2000 might have predicted the 40 to 44 year old men participation rate would about the level as today (see trend line).

Clearly there are other factors than "economic weakness" causing this downward trend.   I listed some reasons a few months ago, and research from Pew Research suggests stay-at-home dads is one of the reasons: Growing Number of Dads Home with the Kids

Just looking at this graph, I don't think there are many "missing 41-Year-Old" men that will be returning to the labor force.

The second graph shows the trends for each prime working age men 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

Clearly there is a downward trend for all 5 year age groups. When arguing about how many workers are "missing", we need to take these long term trends into account.

The third graph shows the same data but with the full scale (0% to 100%).  The trend is still apparent, but the decline has been gradual.

The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just recent "economic weakness") and many estimates of "missing workers" are probably way too high.

And here is a look at the participation rate of women in the prime working age groups over time.

Click on graph for larger image.

This graph shows the trends for each prime working age women 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

For women, the participation rate increased significantly until the late 90s, and then started declining slowly.  This is a more complicated story than for men, and that is why I used prime working age men only in the previous graphs to show the gradual downward decline in participation that has been happening for decades (and is not just recent economic weakness).

This graph shows the same data for women but with the full scale (0% to 100%).  The upward participation until the late 80s is very clear, and the decline since then has been gradual.

To repeat: The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just recent "economic weakness") and many estimates of "missing workers" are probably way too high.

by Calculated Risk on 12/06/2014 01:11:00 PM

The key economic report this week is November retail sales on Thursday.

Also the Census Bureau will release the Q3 Quarterly Services Report on Wednesday, and the Fed will release the Q2 Flow of Funds report on Thursday.

----- Monday, December 8th -----
At 10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, December 9th -----
7:30 AM ET: NFIB Small Business Optimism Index for November.

10:00 AM: Job Openings and Labor Turnover Survey for October from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in September to 4.735 million from 4.853 million in August.

The number of job openings (yellow) were up 20% year-over-year compared to September 2013, and Quits were up 16% year-over-year.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for October. The consensus is for a 0.2% increase in inventories.

Early: Trulia Price Rent Monitors for November. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Wednesday, December 10th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: The Q3 Quarterly Services Report from the Census Bureau.

2:00 PM ET: The Monthly Treasury Budget Statement for November.

----- Thursday, December 11th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 296 thousand from 297 thousand.

8:30 AM ET: Retail sales for November will be released.

This graph shows retail sales since 1992 through October 2014. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales decreased 0.3% from September to October (seasonally adjusted), and sales were up 4.1% from October 2013.

The consensus is for retail sales to increase 0.4% in November, and to increase 0.1% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for September.  The consensus is for a 0.3% increase in inventories.

12:00 PM: Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Friday, December 12th -----
8:30 AM: The Producer Price Index for November from the BLS. The consensus is for a 0.1% decrease in prices, and a 0.1% increase in core PPI.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 89.5, up from 88.8 in November.

by Calculated Risk on 12/06/2014 08:01:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Dec 5, 2014.

Changes and comments from surferdude808:

Very quiet week for changes to the Unofficial Problem Bank List as there was only one removal that pushed the list total down to 407 institutions with assets of $124.0 billion. A year ago, the list held 643 institutions with assets of $219.8 billion.

The Federal Reserve terminated the Written Agreement issued against United Security Bank, Fresno, CA ($693 million Ticker: UBFO). We expect for minimal changes to the list next week.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 407.

The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.