A potentially important development: is the improving job market helping to stabilize the labor force?

August 1st, 2014 at 12:00 pm

Over at PostEverything, with nice pictures.

The piece, which builds off the fact that the formerly tanking labor force participation rate has been fairly stable now since last August, ends with a sports analogy:

Simply put — and because who can resist a econo-sports analogy — we’ll put more growth points on the scoreboard because more people have come in from the sidelines to contribute to the game.

The idea is that if greater labor demand pulls people into the labor market who are currently sitting out, that will boost GDP growth, which is roughly the sum of productivity growth plus labor force growth.

But I fear the analogy may be a bit off. What game allows you to keep sending people in such that as your team grows in numbers, it can score more points than your outnumbered opponent? Imagine a basketball game where you could just keep sending in players off the bench without pulling anyone out. That sounds a bit more like war than sport. Still, you get the point…

July Jobs Report: First Impressions

August 1st, 2014 at 9:13 am

Payrolls grew by 209,000 last month and the unemployment rate ticked up to 6.2% according to today’s report from the Bureau of Labor Statistics.

The payroll gain was below expectations of around 235,000, and well below June’s upwardly revised gain of 298,000. However, while the payroll number is somewhat disappointing, given the jumpiness of monthly numbers, it would be a mistake to conclude that the engine of job growth has significantly downshifted.

Given the monthly noise, it makes sense to take an average of the monthly payroll results. Below is this month’s version of JB’s Jobs Day Smoother, wherein I show average monthly job growth over the past three, six, and twelve months—a useful way of pulling recent trends out of the bouncy monthly data.

The underlying pace of payroll job growth over both the past three and six months is about 245,000 compared to 214,000 for the year-long average. This suggests a moderate underlying improvement in the pace of employment growth, but the safest conclusion given the limits of the data is that the job market is solidly adding over 200,000 jobs per month. This is a decent pace of job growth, but given the existing extent of un- and underemployment, it implies the full employment is still years, not months, away.

Speaking of unemployment, it ticked up slightly from 6.1% to 6.2%, but for “good reasons:” the household survey, from which these data are derived, showed more job growth, but even more people entering the labor market. This last point takes me to one of the two data points I’d highlight in today’s report.

First, and I’ll have more on this later, there is some evidence that the all-important labor force participation rate may be stabilizing. It rose a tenth last month to 62.9%, but has wiggled between 62.8% and 63.2% since last August. If the firming job market has in fact arrested the decline in this key metric of labor supply, it will be an important and favorable sign.

The second highlight, which looks less favorable, is wage growth, a particularly important part of the economic story right now. From the perspective of working families, it’s been a key missing ingredient from the recovery. Real hourly earnings for most workers have been largely flat, meaning income gains must come from more work, not higher real hourly pay.

From the perspective of the Federal Reserve, the fact that nominal wage growth has held steady at about 2%–around the rate of inflation—suggests that even with the evidence of recent tightening, considerable slack remains in the job market.

Today’s report provides a clear microcosm of precisely this problem: average hourly wages were up 2% over the past year, the same pace at which they’ve been growing, and just about the rate of inflation, implying stagnant real earnings. Moreover, average weekly hours haven’t budged since March, so that route towards growing real incomes hasn’t been accessible either.

Summing up, while the lower-than-expected topline payroll number for July dampens the acceleration in job growth we saw in June, over the past six months payrolls are up just shy of 250,000 per month, a moderate pace. Importantly, the consistently, if ploddingly, improving job market appears to be arresting the worrisome decline in the labor force rate. If so, this will be an unequivocal plus for the recovery.

Finally, wage growth remains one very important area that continues to reflect the slack that still besets this job market. Until things tighten up a lot more, too many workers will continue to lack the bargaining clout they need to claim their fair share of the growth.



Source: BLS, my analysis.



An Obvious but Important Point Regarding Executive Orders

July 31st, 2014 at 5:52 pm

It was my privilege to visit the White House today to attend the signing of the new Executive Order to ensure that federal contracts don’t go to firms that violate labor laws.

As I wrote earlier, it’s a good idea for a number of reasons:

First, the federal government does a lot of business with private firms, something in the neighborhood of $500 billion per year, and many firms depend on the business. The new order thus raises the cost of labor violations and strengthens the incentives to do the right thing. In so doing, it puts scofflaws at a competitive disadvantage.

Second, since the minority of firms that have shoddy labor practices and/or ongoing labor disputes are likely lousy performers anyway, I suspect this new rule will improve contract efficiency.

As the White House put it: “Contractors who invest in their workers’ safety and maintain a fair and equitable workplace shouldn’t have to compete with contractors who offer low-ball bids—based on savings from skirting the law—and then ultimately deliver poorer performance to taxpayers.”

But here’s something that I didn’t mention which I thought about as I listened to President Obama: the next president could revoke this order day one of his or her term. In fact, it’s common practice to do so, depending of course on the party of the new president.

EO’s are not legislation, and while I know everyone knows this, it’s worth remembering, especially with regards to an EO like this. I suspect that if it lives long enough, the positive impact of this new order will grow over time. It will become part of the embedded culture among firms that contract with the feds that it’s much better for your bottom line if you don’t break labor laws. And it will become a standard practice among procurement officers to enforce that discipline using the information they’ll now have on firms’ histories of such violations.

But that kind of cultural shift will take years to evolve and if the next president revokes this EO, it won’t happen. It’s just a thought worth reflecting upon when contemplating the costs of Congressional dysfunction, the shutting down of legislative options, and the stakes of the next presidency.


Heads Up: It’s Jobs Tomorrow…again

July 31st, 2014 at 5:25 pm

Here’s the expectations table from Bloomberg:



Source: Bloomberg

Jobs-watcher extraordinaire Heidi Shierholz asks this of tomorrow’s report:

…have we really kicked it into higher gear? A jobs number north of 270,000 would be a pretty clear sign that the answer is yes—but anything much less than that would push us back to “we have to wait and see” territory.

Her 270K is about the trend over the past three months, and while it’s a noisy indicator, GDP appears to have accelerated smartly in Q2 as well, based in part on faster consumer spending and investment, which may well have generated more jobs in July.

So, while I’ve not had time to run my model (not that it helps much), I’d look for a number on the upside of the consensus printed above (233K).

Look for “first impressions” shortly after the 8:30 release.