by Calculated Risk on 11/02/2012 11:05:00 AM

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.
All Employment Graphs

by Calculated Risk on 11/02/2012 08:30:00 AM

From the BLS:

Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics reported today.
...
[Household survey] The civilian labor force rose by 578,000 to 155.6 million in October, and the labor force participation rate edged up to 63.8 percent. Total employment rose by 410,000 over the month. The employment-population ratio was essentially unchanged at 58.8 percent, following an increase of 0.4 percentage point in September.
...
The change in total nonfarm payroll employment for August was revised from +142,000 to +192,000, and the change for September was revised from +114,000 to +148,000.

Click on graph for larger image.

With 171,000 payroll jobs added, and the upward revisions to the August and September reports, this was a solid report. And that doesn't include the annual benchmark revision to be released early next year that will also show more jobs.

This was above expectations of 125,000 payroll jobs added.

The second graph shows the unemployment rate. The unemployment rate increased slightly to 7.9%.

The unemployment rate is from the household report, and that report showed another month of strong job growth. The unemployment rate increased because of the significant increase in the labor force (and the increase in the labor force participation rate).

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

The Labor Force Participation Rate increased to 63.8% in October (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although most of the recent decline is due to demographics.

The Employment-Population ratio increased to 58.8% in October (black line). I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

The fifth graph shows the job losses from the start of the employment recession, in percentage terms compared to other financial crisis (including the Great Depression).

This is an update to a graph by economist Josh Lehner (ht Josh for the data):

[I]n the context of the Big 5 financial crises, the current U.S. cycle suddenly does not look quite as dire. Notice how the x-axis, how long it takes to return to peak levels of employment, is measured in years(!) not months like the first graph.
...
[T]he U.S. labor market has performed better than 4 of the previous Big 5 crises, as identified by Reinhart and Rogoff, in terms of job loss and the return to peak time line.

Including the upward revisions, this was a much stronger report than for recent months. I'll have much more later ...

by Calculated Risk on 11/01/2012 09:18:00 PM

On Friday, at 8:30 AM ET, the BLS will release the employment report for October. The consensus is for an increase of 125,000 non-farm payroll jobs in September, slightly more than the 114,000 payroll jobs added in September. The consensus is for the unemployment rate to increase to 7.9%.

This month the ADP employment report showed an increase to 158,000 private sector jobs. That might suggest that the consensus is low, but the ADP methodology was changed and we will have to wait a few months to see if there is any improvement in predicting the BLS report.

Initial weekly unemployment claims averaged about 367,000 in October - near the lows for the year - and down from the September average of 373,000. That suggests a few more jobs added in October than in September.

For the BLS reference week (includes the 12th of the month), initial claims were at 392,000; up from 385,000 during the reference week in September - but that increase was due to timing and technical issues - so it might not be that negative.

The small business index from Intuit showed 10,000 payroll jobs lost, down from 40,000 added in September. That is a strong negative.

And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Down to 7.0% in October

UU.S. unemployment, as measured by Gallup without seasonal adjustment, fell to 7.0% for the month of October, down significantly from the 7.9% measured at the end of September. Gallup's seasonally adjusted unemployment rate is 7.4%, improved more than a half a point from September.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats). Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

Friday:
• At 8:30 AM ET, the Employment Report for October will be released. The consensus is for an increase of 125,000 non-farm payroll jobs in October. The consensus is for the unemployment rate to increase to 7.9% in October, up from 7.8% in September.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for September. The consensus is for a 4.0% decrease in orders.

Two more questions for the November economic prediction contest and four question for the November contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 11/01/2012 07:13:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in September to 3.41% from 3.44% August. The serious delinquency rate is down from 4.00% in September last year, and this is the lowest level since March 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate increased in September to 3.37%, from 3.36% in August. Freddie's rate is down from 3.51% in September 2011. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

In 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level.

Although this indicates some progress, the "normal" serious delinquency rate is under 1% - and it looks like it will be several more years until the rates back to normal.

by Calculated Risk on 11/01/2012 04:34:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.29 million SAAR in October. That is up 8% from October 2011, and down 4% from the sales rate last month.

This was below the consensus forecast of 14.9 million SAAR (seasonally adjusted annual rate), however sales were impacted by Hurricane Sandy at the end of October, and sales will probably bounce back quickly.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for October (red, light vehicle sales of 14.29 million SAAR from Autodata Corp).

Click on graph for larger image.

Sales have averaged a 14.24 million annual sales rate through the first ten months of 2012, up from 12.6 million rate for the same period of 2011. Last year sales were depressed for several months (May through August) due to supply chain issues related to the tsunami in Japan. By September 2011, the supply chain issues were mostly resolved, and this year-over-year increase for October is significant.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession.

Most (or all) of the month-to-month decline was related to Hurricane Sandy.

by Calculated Risk on 11/01/2012 02:02:00 PM

The BEA released the underlying details for the Q3 Advance GDP report.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

Investment in offices is down about 59% from the peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years.

Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 61% from the peak (note that investment includes remodels, so this will not fall to zero).

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 74%.

The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is finally increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $155 billion Seasonally Adjusted Annual Rate (SAAR) in Q3 (just under 1.0% of GDP), still above the level of investment in single family structures of $131 billion (SAAR) (or 0.8% of GDP). In the next year or two, single family structure investment will overtake home improvement as the largest category of residential investment.

Brokers' commissions increased slightly in Q3 as a percent of GDP. And investment in multifamily structures increased in Q3. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

All Housing Investment and Construction graphs

by Calculated Risk on 11/01/2012 11:54:00 AM

Three key construction spending themes:

• Private residential construction spending is still very low, but increasing. Residential construction declined sharply for four years following the peak of the housing bubble, and then move mostly sideways for another three years.

• Private non-residential construction spending picked up last year mostly due to energy spending (power and electric), but spending on office buildings, hotels and malls is still very low.

• Public construction spending is down 4% year-over-year and has been declining for several years.

The Census Bureau reported that overall construction spending increased in September:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during September 2012 was estimated at a seasonally adjusted annual rate of $851.6 billion, 0.6 percent above the revised August estimate of $846.2 billion. The September figure is 7.8 percent above the September 2011 estimate of $790.3 billion.

Private construction spending increased and public spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $580.5 billion, 1.3 percent above the revised August estimate of $572.8 billion. ... In September, the estimated seasonally adjusted annual rate of public construction spending was $271.1 billion, 0.8 percent below the revised August estimate of $273.4 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 58% below the peak in early 2006, and up 29% from the post-bubble low. Non-residential spending is 29% below the peak in January 2008, and up about 29% from the recent low.

Public construction spending is now 17% below the peak in March 2009 and at the post-bubble low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 21%. Non-residential spending is also up 9% year-over-year mostly due to energy spending (power and electric). Public spending is down 4% year-over-year.

All Housing Investment and Construction Graphs

by Calculated Risk on 11/01/2012 10:00:00 AM

The ISM manufacturing index indicated expansion in October. PMI was at 51.7% in October, up from 51.5% in September. The employment index was at 52.1%, down from 54.7%, and the new orders index was at 54.2%, up from 52.3%.

From the Institute for Supply Management: October 2012 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in October for the second consecutive month following three months of slight contraction, and the overall economy grew for the 41st consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 51.7 percent, an increase of 0.2 percentage point from September's reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate. The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month. The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points. Comments from the panel this month reflect continued concern over a fragile global economy and soft orders across several manufacturing sectors."

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was slightly above expectations of 51.0% and suggests manufacturing expanded in October.

by Calculated Risk on 11/01/2012 08:30:00 AM

The DOL reports:

In the week ending October 27, the advance figure for seasonally adjusted initial claims was 363,000, a decrease of 9,000 from the previous week's revised figure of 372,000. The 4-week moving average was 367,250, a decrease of 1,500 from the previous week's revised average of 368,750.

The previous week was revised up from 369,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.



Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 367,250. This is about 4,000 above the cycle low for the 4-week average of 363,000 in March.

Weekly claims were slihgtly lower than the consensus forecast of 365,000.



And here is a long term graph of weekly claims:

Mostly moving sideways this year, but near the cycle bottom.

SPECIAL NOTE: Due to Hurricane Sandy, we will probably see an increase in initial unemployment claims over the next few weeks.

All current Employment Graphs

by Calculated Risk on 11/01/2012 08:23:00 AM

ADP reported that employment in the U.S. nonfarm private business sector increased by 158,000 from September to October, on a seasonally adjusted basis.

This was above the consensus forecast for private sector jobs added, and is a little surprising given the change in methodology.  Note:  The BLS reports on Friday, and the consensus is for an increase of 125,000 payroll jobs in October, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report (maybe the new method will work better), but this suggests a stronger than consensus report.