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Friday, September 06, 2013

Employment, August 2013

The report is here. The notable factors are not the headline numbers (7.3% unemployment rate, Establishment Survey jobs +169K) but the underlying detail. 

There were substantial downward revisions for the past two months in Establishment Survey jobs, with July's total nonfarm down to 104K. The unemployment rate is down, but that's due entirely to a drop in participation rate, which had been at 58.7 for the last two months, but fell to 58.6 this month.

It is entirely possible for SA employment numbers to move in two opposite directions in the two surveys (Household vs. Establishment), and this is one of the months in which they do. The Household number of total employed fell 115K whereas the Establishment count rose 169K. 

The unemployment rate keeps falling, and it's not hard to see why with the not-in-labor-force number rising 516K this month. The civilian noninstitutional population rose 203K, so a net loss of over 300K from those who could be working or looking for work really moves the numbers. 

The downward revision for Establishment in July probably was significantly related to the car shutdown, so I don't view either the Establishment survey or the Household survey as indicating a change in direction. However both seem to show a pretty weak economy job-wise. The YoY jobs gain for the Household survey is almost exactly 2 million. The YoY for Establishment total nonfarm (you have to get this from the historical table) is slightly better at close to 2.2 million (I'm doing this from memory because the table is currently unavailable). The two-month total for Household is 112K, which is not good, but which should increase next month as all of the education jobs are picked up. 

One very large factor driving the unemployment rate down are retirements. The increase in the labor force (those working or actively looking for work) over the year was 864K, although the overall increase in civilian non-institutional population was more like 2.4 million.. Jobs are growing at a slower rate than would be historically expected, but that rate is significantly lower than the rate of exits from the labor force, therefore the improvement in official unemployment rates has legs as a trend. The 25-and-older unemployment rate for those with at least a college degree has dropped to 3.5%, indicating a much-improved environment. Discouraged workers grew slightly over the year, but marginally attached to the labor force did not, so it really is retirements.

This is still a very difficult environment for young people looking for their first "real" job. The younger average age among black workers probably accounts for the excruciatingly high unemployment rate of 13%, but it still burns. Hispanic unemployment rates are 9.3%, Asian unemployment rate is at 5.1%, and white unemployment rate is at 6.4%. And ages do account for some of this, but not all. 

It is an even worse environment for older workers who lose a job (the 60-and-older crew). They probably account for the monthly increase in the 27-week and over unemployment. This has dropped over the year, and it's probably because many of these older workers have reached retirement age. 

The end of the auto plant July shutdown probably accounts for the big monthly drop in part-time workers due to slack work. Over the year the part-time for economic reasons number has only dropped about 130K, but part of that is due to the retail/restaurant jobs ACA effect. 

Turning again to the Establishment survey, service jobs were weak at 134K, saved by the big increase in health/education jobs (38K, versus July's 15K). Private jobs, when adjusted for the auto shutdown don't seem to have changed from July to August, although the headline numbers did (127K/152K). Government jobs dropped 23K in July and increased 17K in August, which is not surprising given education calenders and doesn't reveal much of a trend. 

To get a sense of just how weak the underlying job creation trend is, perhaps table A-13 is the best quick overview. This table gives a YoY non-seasonally adjusted comparison for various fields, so all error is survey error. Note the YoY drop in production occupations! This table gives the YoY employment gain at about 1.95 million. Construction helped. 

Since we have growing employment stability, as evidenced by the very favorable trend in unemployment apps, there is a somewhat more favorable impact on spending than one would expect from raw job gains. After all, consumuer spending trends depend not just on jobs but on the certainty of income from those jobs. Retirement incomes are mostly stable also, so there is a growing strength to the spending "floor" compared to the economy of even ten years ago. 

However, the correlated axiom to the above M_O_M fudge factor effect is that this economy is extremely sensitive to inflation trends. Exceptionally so when compared against the economy of a decade ago, or even the entire range of post WWII experience. And this trend too has legs. This sensitivity will probably slowly increase over the next twenty years. 

Thus, theories that increasing inflation will materially help the US economy are slightly off the mark. This economy cannot probably achieve a 2% inflation rate. It's literally not in the cards. The retraction of consumer spending is too front-loaded. Also the official CPI is very ineffective at gauging real household spending tendencies - much of household expenditures fall in the range of "forced" spending for fuel & energy, food, medicine and taxes. Any increases in these blocks will force an immediate hard retraction in spending in other, more discretionary blocs. 

For China and such countries, the implications are rather dramatic. Europe is in the same boat. These two huge consumer blocs have driven much of the Asian expansion over the last twenty years, and now that's wearing to a natural end. 

Update: The most problematic feature of the employment reports was of course seized upon by Mark. Go to the link for the lovely graphs and music.

To augment Mark's eternal optimism:
That's the graph of production jobs. It's sure a relief that there's no correlation with recessions, isn't it? Oh, wait.... 

Industrial production:
So maybe it's not just mechanization, huh? 

Hmm, hmm, this looks familiar somehow. Where/when have I seen this before????????
History is not the Fed's housecat. 

I do disagree with Mark's musical selection, though:

On the brighter side, time cures all ills, and it will eventually cure ours. My favorite O Fortuna version

There are a number of factors that are restraining the growth in employment, and the ones you talk abour are important.

One factor is the exportation of jobs offshore by corporations trying to save money by taking advantage of low employment costs in other countries. That is why corporations that are making profits may still be laying off American workers, or just not hiring.

In my book, Job Creation Tax Plan, I propose a solution: Revise the income tax rate structure for corporations so that their rates tie in with their hiring practices: The more they hire, the lower their rates, the less they hire, the higher their taxes. This will enable growing companies to grow faster and will encourage corporations to hire in this country instead of exporting jobs to other countries..
Hamilton - in the past, companies have used such credits to offset the cost of OFFSHORE hiring.

One has to be careful.

But anyone looking at that table showing a loss of production jobs over the last year has to be very thoughtful.

It is quite clear that we are in, at best, the era of diminishing returns from Fed policies. Thus it would naturally be time to work on fiscal and structural measures to assist growth.

Random wars are not going to do it.
Random wars do, however, keep nasty employment reports off the front page.
Indeed, indeed. Also irritating questions about why the NSA really needs pictures of your colon.

Also irritating questions about why the NSA really needs pictures of your colon.

It's all just an honest mistake. Some higher up probably demanded that he needed to see all the text that every American types. You know, to protect our freedoms!

Does that include the colon?

Of course it does!

What about semicolons?

Good grief! Yes! Everything related to the colon must be examined!

And on that note, I offer some calming music as a tribute to today's employment report. I think you'll really like it this time. It's just so relaxing!

Goods-Producing Employment (Musical Tribute)
Yes, Mark, you have identified the horsefly in the soup. We've made it back to 2006 industrial recession territory, and are on a declining trend. Modifying my post to include your link.

To augment Mark's eternal optimism:

Yes! Eternal! Without the eternal belief system that we live in the best of all possible worlds, the general rule of snark law would break down. Anarchy!

I do disagree with Mark's musical selection, though:

Let's compromise! It *must* involve cats in one form or another!

O Fortuna Misheard Lyrics (Animated)

Gopher tuna!
Bring more tuna!
Statue of big dog... with fleas

Mark, I need not begin to assassinate your family members. We have reached a prophetic diplomatic compromise.

O Fortuna Gopher Tuna it is, and let us all hush and listen to these words of wisdom. That is my second favorite O Fortuna version.

I need not begin to assassinate your family members.

Feel free to reserve judgment on that until after you looked at the following charts. Sigh.

The Rise and Fall of the Middle Manager

I take full responsibility for my family members. Just shoot me now, lol. Sigh.

(Much more sighing than laughing I assure you.)
But Mark, one cannot kill those who are trying to deal with reality if one wants to achieve anything worth achieving.

Now if one is seeking disaster, knocking off all those trying to deal with reality is an excellent mechanism for "success".

But Mark, one cannot kill those who are trying to deal with reality if one wants to achieve anything worth achieving.

I think I have a plan that uses the spirit of your point.

When we were bombing Iraq I joked to my sister that it would make more sense to drop automobiles on the evil doers than bombs. We desperately needed a way to spur auto demand in order to save this economy. Win win!

Times have changed though. I don't think it would make sense to drop autos on Syria. I wonder if there's something else we could drop?

In World War II we were known to drop elite paratroopers into dangerous situations to resovle the problems.

I therefore suggest a two-pronged approach.

By air, we drop a division of Elitist Congressional Shock and Awe Troopers. For maximum shock and awe, I suggest downsizing the size of the parachutes. We'll want them coming in fast an furious.

By ground, we send in an Academic Ivory Tower Calvary Bridgade. Why horses you might ask? The rear view mirror clearly shows that our economy used horses "200 years" ago with great success! All we need to do is extrapolate that great success to today. Can't lose!

Stocks for the Long Run

Siegel argues that stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. He expects returns to be somewhat lower in the next couple of decades.
The more they hire, the lower their rates, the less they hire, the higher their taxes.

Indirectly, the proposal is an automation tax. A sane businessperson would just locate most of his operations overseas to avoid this obvious manipulation.

In other words, the proposal is an extension of the exact structural problems employers and employees are already up against in uncompetitive countries.
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