First Impressions: Strong payroll gains mark another solid jobs report

December 5th, 2014 at 9:24 am

Employers added workers at a much faster-than-expected clip last month, as payroll gains 321,000, the largest monthly gain since January 2012. Upward revisions to the prior two months added another 44,000, while the unemployment rate held steady at 5.8%. Even wage growth, which has been a critical missing piece of the recovery, got at least a monthly bump, up 0.4%, though the more relevant year-over-year growth rate remains stuck at around 2% (2.1%, Nov13-Nov14), where it has been since 2010.

While any one month’s results from these “high-frequency” data should be taken with a grain of salt (see the “JB smoother” below), I saw no obvious anomalies in the payroll data. Job growth was robust across industries, with almost 70% of private industries expanding, the highest level for this metric since 1998. Businesses added 86K, retail was up 50K, and manufacturing, a key sector that had been a laggard in recent months, added 28K, mostly in the higher paying durable goods sector.

Smoothing out monthly ups-and-downs, this month’s JB smoother©, which averages monthly gains over 3, 6, and 12 months, shows a nice acceleration in payroll gains. Over the past three months, net job growth is up 278,000 per month. Over the past year, this measure is up 228,000, showing an acceleration of 50,000 jobs per month.


Source: BLS, my analysis

[BTW, in deference to this simple way of smoothing out monthly noise, the BLS announced that in coming months it will add three-month averaging of monthly payroll gains to its summary table. Good for them!]

In another sign of improving labor market demand, average weekly hours ticked up a tenth, matching pre-recession levels. The unemployment rate, which comes from a survey of households (as opposed to business establishments, like the data discussed above) held steady at 5.8% (it actually ticked up a touch, from 5.76% to 5.82%, but who’s counting?).

But the key takeaways here are:

–Unlike the more reliable payroll survey, employment was unchanged in the household survey.

–In a solid sign for the job market recovery, the labor force participation rate continues to hold steady, at 62.8% last month—after falling sharply through the recession and recovery, this important measure of labor utilization has been flat now for over a year.

–While the numbers of long-term unemployed and involuntary part-timers remains high, especially more than five-years into an economic expansion, they both fell last month, continuing a downward trend.

Finally, turning to the wage story, as noted, average hourly wages got a nice $0.09 (0.4%) bump in November, but that just made up some lost ground from recent monthly stagnation. Thus, the year-over-year measure is still stuck around 2%, where it’s been since around 2010. With topline inflation last seen rising at 1.7% percent, this translates into quite modest real gains for the buying power of the hourly wage.

But with the added weekly hours, weekly earnings are up 2.4%, year-over-year, the highest growth rate in a year. Here again, however, real gains still equate to less than 1%, and they’re coming from more work at stagnant real earnings. The punchline of all this is that the job market appears to be solidly on the mend. Yet slack remains, and this is most clearly seen in the wage data.

As I’ll get to later in the day, recent developments in the relationship between slack and wage growth suggest that it will take more than falling unemployment and strong payroll gains to offset the historically low bargaining power of most American workers. For the benefits of growth to really show up in paychecks, we need to not only get to truly full employment, but to stay there for a good long while! That exclamation point is so they can hear me all the way over at the Fed building on Constitution Ave.

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One comment in reply to "First Impressions: Strong payroll gains mark another solid jobs report"

  1. Lance says:

    . In free-market capitalism, capital generates income for the owners of the capital which in turn is used to create additional capital. This is very good. Sometimes, it can be actually too good. As capital continues to accumulate, its owners find it more and more difficult to deploy it efficiently. The business sector generally must interact with the household sector by selling goods and services or lending to them. When capital accumulates too rapidly, the productive capacity of the business sector can outpace the ability of the household sector to absorb the increasing production.

    The capitalists, or if you prefer, job creators use their increasing wealth and income to reinvest, thus increasing the productive capacity of the business they own. They also lend their accumulated wealth to other business as well as other entities after they have exhausted opportunities within business they own. As they seek to deploy ever more capital, excess factories, housing and shopping centers are built and more and more dubious loans are made. This is overinvestment. As one banker described the events leading up to 2008 – First the banks lent all they could to those who could pay them back and then they started to lend to those could not pay them back. As cash poured into banks in ever increasing amounts, caution was thrown to the wind. For a while consumers can use credit to buy more goods and services than their incomes can sustain. Ultimately, the overinvestment results in a financial crisis that causes unemployment, reductions in factory utilization and bankruptcies all of which reduce the value of investments.

    If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990’s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.

    It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increases in savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.

    Since 1969 there has been a tremendous shift in the tax burdens away from the rich on onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers. …”