Financial Review

September Jobs Report – The Calm After the Storms

Sinclair Noe — October 6, 2017

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DOW – 1 = 22,773
SPX – 2 = 2549
NAS + 4 = 6590 (record)
RUT – 1 = 1510
10 Y + .02 = 2.37%
OIL – 1.54 = 49.25
GOLD + 8.30 + 1277.10

Cryptocurrency

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• Total Market Cap: $148,250,144,896
• 24H Volume: $2,405,350,001

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	Ethereum	ETH	308.91	$29.28B	$327.98M	13.64%	0.0705825	+0.10%	+4.96%
	Ripple	XRP	0.23600	$9.07B	$170.03M	7.07%	0.00005379	+1.25%	+20.16%
	Bitcoin Cash	BCH	363.67	$6.07B	$183.16M	7.61%	0.083353	+0.32%	-17.17%
	Litecoin	LTC	52.160	$2.77B	$59.57M	2.48%	0.0119236	+0.08%	-2.30%
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The economy “lost” 33,000 jobs in September, marking the first month of job losses since 2010, and breaking a string of 83 consecutive months of job gains. The unemployment rate fell to 4.2% from 4.4% and hit the lowest level since December 2000. The BLS said the hurricanes affected the payroll jobs number but not the unemployment rate.

Hiring and employment in September were stunted by hurricanes Harvey and Irma. The monthly jobs report is based in part on a survey of roughly 60,000 American households. One question on that survey asks whether people who normally have jobs were not at work because of bad weather.

In a typical September, around 30,000 workers fall into that category; this year, that number was 1.5 million. Another nearly 3 million people reported working part-time because of the weather. The Bureau of Labor Statistics acknowledged that the storms reduced total employment but didn’t estimate the size of the effect.

Still, it is nearly certain that, had it not been for the hurricanes, job growth would have been positive for a record 84th consecutive month. Hiring could even get a boost from a temporary increase in the number of people employed to help clean up and rebuild after the hurricanes. In 2005, Hurricane Katrina resulted in 2 months of weak employment growth, then a jump in hiring.

Wages rose 0.5%, or 12 cents, to $26.55 an hour, likely reflecting a hurricane-induced bump. Over the past 12 months hourly pay increased by 2.9%, up from 2.7% in the prior month and matching a post-recession high. Upward revisions to earnings in the two prior months show wage pressures had been building before the hurricanes hit.

The industry hurt the most was the restaurant business, where employment fell by a whopping 105,000. The absence in the latest employment report of so many restaurant workers, who tend to be lower paid employees, likely inflated wage growth in September. If they were included the growth in pay would have been smaller. Low-wage, hourly workers in other industries may also have been disproportionately affected by the storm.

And this also gives us a real time understanding of why wages have remained stubbornly low throughout the recovery. While almost any job is better than no job – many of the jobs created in the recovery are low-paying. Although the Census Bureau last month reported a jump in annual incomes across a wide spectrum, households with incomes below the median are still worse off than they were in 2000.

There are signs that the labor shortage is nudging up wages in some places. Target announced last month that it was increasing its base hourly pay by $1, to $11 — higher than or equal to the minimum wage in every state.

A quick rundown of other sectors: Healthcare added 23,000 jobs, transportation and warehousing increased by 22,000, financial activities added 10,000 and construction added 8,000 jobs. Manufacturing lost 1,000, information lost 9,000 jobs, and retail lost almost 3,000 jobs.

The U-6 unemployment rate moved down to 8.3%, this measure includes unemployed plus underutilized – meaning people working part-time for economic reasons. The number of people working part-time for economic reasons also fell. There are 1.73 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.74 million in August.

The Labor Force Participation Rate was increased in September at 63.1% but is still at historically low levels. This is the percentage of the working age population in the labor force. This would indicate that the labor market is strong enough to pull people into the labor pool. Labor-force flows data showed the number of Americans not in the labor force a month earlier and found a job in September hit a record high.

Much of the decline in labor force participation rates can be attributed to baby boomers who are retiring and younger workers who are staying in school to get more skills. But the Labor Force Participation Rate for workers age 25-54, the prime working years, also remains historically low – the best guess there is that the opioid epidemic has left many workers sidelined. Trump promised to get these guys back to work, but it isn’t happening.

Since he took office, prime-age male labor force participation has fallen by half a percentage point. A federal study estimated that prescription opioid abuse cost the economy $78 billion in 2013 – a number that has surely climbed over the past 4 years, but that does not capture the broader effect on businesses from factors like lost productivity. And we all know that lower productivity keeps a lid on wages.

Many companies report that more than 25% of job applicants fail to pass a drug screen test. The Fed’s regular Beige Book surveys now include regular notes on the inability of employers to find workers able to pass drug screenings. Were it not for the drug issue, workers trapped in low-wage jobs might be able to secure better-paying, skilled blue-collar positions and a toehold in the middle class.

In September, the year-over-year change was 1.77 million jobs. This is the lowest year-over-year job growth since August 2011. The loss of 33,000 jobs means the average monthly job growth so far in 2017 is just over 148,000 jobs.

At this point in 2016, the average monthly job growth was just under 200,000 jobs. At this point in 2015, the average monthly job growth was 209,000 jobs. So, it’s clear that job growth so far during the Trump Administration has slowed from past years.

The government raised its estimate of new jobs created in August to 169,000 from 156,000. July’s gain was reduced to 138,000 from 189,000 – a net loss of 38,000 jobs in the monthly revisions. The September loss will also be revised in the months ahead.

This month’s numbers were certainly affected by Hurricanes Harvey and Irma. There is a decent chance that next month’s numbers will show a big increase, and almost every economist today is saying this is a weather-related aberration – and that is probably true, but we did break the string of consecutive months of job gains.

In technical analysis of stock charts, analysts watch the price action – they pay little or no attention to the fundamental news. Is the price going up or down? It doesn’t matter if there was a bad earnings report or a new CEO was hired.

If the September job losses are not revised to positive next month, it means we have broken a very strong upward trend in jobs – the reason why the trend is broken might not be as important as the fact that the trend is broken.

Support has been violated, and once a trend line is broken it is much easier to see another test of support. This is how an uptrend reverses and turns into a downtrend. There is a good chance that today we saw a key reversal in the 83-month uptrend in the job market.

But for now, it is too early to declare the jobs recovery is over. We need to wait for confirmation. One month does not make a trend. With the unemployment rate at 4.2%, the economy is getting closer to full employment. It will be more and more difficult for employers to fill jobs. Federal Reserve policy makers have been watching for signs of an acceleration in pay that may push inflation closer to their goal.

At this point in the recovery, wage growth should be well over 3%. Even with a one-month bump, wages are still lagging. There are several reasons why wages are stagnant – globalization and automation are frequently cited. Also, demographics – the silver tsunami of retiring boomers – usually experienced, qualified workers who earn more than their junior counterparts.

Sub-4 percent unemployment is very possible and very soon, and no one at the Fed thinks that can be sustained without triggering higher inflation. The probability of a Fed rate hike in December rose to 98 percent following the report, from about 75 percent on Thursday, according to the prices of federal funds futures contracts, marking a new high.

We still have a couple more jobs reports before the Fed FOMC meeting in December which will almost certainly confirm this month is a “one-off”, weather related glitch – the soft payroll number will be ignored at the Fed; unemployment is what matters, and this report therefore makes a December rate hike even more likely.

So, the unemployment rate dropped to 4.2% but the economy lost 33,000 jobs in September. It was a terrible jobs report, but with the hurricanes, nobody expected anything good.

Financial Review

Lousy Good Friday Jobs Report

Sinclair Noe — April 3, 2015

 

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The New York Stock Exchange and the Nasdaq were closed in observance of Good Friday. The Chicago Mercantile Exchange was open, for a holiday shortened session, so there was some trading in equity index futures, and interest-rate and forex futures, and also some light trading in the bond markets. Good Friday is not a federally recognized holiday, and so the monthly jobs report was issued on schedule. We’ll just have to wait until Monday to see how the markets react.

It was a lousy jobs report. The economy generated just 126,000 new jobs last month, marking the smallest gain since the end of 2013; estimates had been calling for twice as many new jobs. The unemployment rate was unchanged at 5.5%. Employment gains for February and January were revised lower by a combined 69,000. The result: The increase in hiring in the first three months of 2015 has slowed dramatically to an average of 197,000. While the pace of hiring this year is still fairly decent, it doesn’t come close to matching average job gains of 289,000 in the fourth quarter.

This was just one lousy jobs report, and that does not constitute a trend but it might reflect a slowdown that we’ve been seeing in other economic data, including consumer spending patterns, a slowdown in the energy sector, sluggish business investment; and don’t forget the bad weather. The energy sector has responded to lower oil prices by cutting the number of active oil rigs and laying off workers. Lower oil prices have been a boon for most consumers, but it hasn’t resulted in more spending; instead consumers are saving more.

With companies hiring at a slower pace, some 96,000 Americans dropped out of the labor force in March. The labor-force participation rate fell a tick to 62.7%, once again matching the lowest level in 37 years. This indicates that we are now realizing the demographic shift of the boomer population moving into retirement; 37 years ago, back in the late 1970s, the boomers were just moving into the jobs and careers – that pushed the participation rate higher. Right now the participation rate for 25 to 54 year olds, or people in their prime working years, is at 80.9%. For people older than 55 the participation rate is 39%. That’s because as people age, they retire and drop out of the labor force. And get this… in 2000, the 25-to-54-year-old group made up 42% of the population, while the 55-and-over group made up 20%. Today, the over-55 group makes up 27%, while the younger group has declined to 39%. Certainly some people dropped out of the labor force because they were discouraged, and some discouraged workers retired; but more and more we are seeing a massive demographic shift with boomers retiring. The demographic shift can play havoc with economic growth, lopping off more than a half a percentage point in economic growth per year.

Long-term unemployment also remains a problem for older workers even as more seniors are hanging on to their jobs well into their 60s. A report issued by the AARP Policy Institute this week noted that last year, on average, 45 percent of job seekers aged 55 and older were out of work for 27 weeks or more. The number of long-term unemployed was little changed at 2.6 million in March.

That said, we are not at full employment. We’re not even certain what full employment is anymore. The Fed guesstimates that it is around 5% to 5.2%, but that is a guess. There are still 6.7 million workers employed part-time for economic reasons; that means they want a good full-time job, but they can’t get one or because their hours were cut back. These workers are included in the alternate measure known as U-6, which measures unemployment and underutilization. The U-6 decreased to 10.9% in March from 11% in February. This is the lowest U-6 since the summer of 2008.

Slack in the labor market shows up in the wage numbers. If we were at full employment, workers should be demanding and getting higher wages. We are starting to see a little improvement, but still not enough to stoke wage push inflation. McDonald’s and Walmart each announced this week that they would start raising wages for low wage workers; this was not part of this month’s jobs report but it will start showing up over the next few months. Think of slack as who has leverage, employers or workers. Right now, employers still call the shots. Wages are starting to move higher because the leverage is starting to shift, just starting.

Average hourly wages rose a solid 0.3% in March, or 7 cents to $24.86; though how much employees get paid hasn’t shown much change despite the biggest increase in hiring in 2014 in 15 years. The increase in wages over the past 12 months was 2.1%.Year-over-year increases have stuck to a tight range of 1.9% to 2.2% for the past three years. And wage gains have averaged about 2% since 2010, just two-thirds as fast as they normally grow. Still, wage growth is now running just a little ahead of inflation, so the gains are real… except, the amount of time people worked each week slipped 0.1 hours to 34.5 hours after hovering at a post-recession high for months. So, wages up, hours down – it’s a wash.

Total employment increased 126,000 from February to March and is now 2.8 million above the previous peak.  Total employment is up 11.5 million from the employment recession low. Private payroll employment increased 129,000 from February to March, and private employment is now 3.3 million above the previous peak. Private employment is up 12.1 million from the recession low. And that is one of the unique things about the jobs recovery, it has happened without a boost from government jobs; to the contrary, government jobs have been cut since the recession and that has served as a drag on recovery in the labor market.

Breaking it down by industries: government lost 3,000 jobs last month, manufacturing and logging each lost 1,000 jobs, the mining and logging sector lost 11,000 jobs – this includes jobs in the oil exploration and drilling industries. We saw 2,000 jobs added in the information sector, 5,800 new jobs in wholesale trades, 8,000 new jobs in financial activities, a gain of 9,500 in transportation and warehousing, almost 30,000 jobs in retail, and 13,000 new jobs in hospitality and leisure (we saw a big jump in restaurant jobs – 88,000 in February – but that might be tapering off now), education and health services added 38,000 jobs, and professional and business services added 40,000.

So, what does this mean for the economy and the markets? Well, first of all, this is one month, it is not a trend. One year ago, we were just coming out of a harsh winter, and the economy was down, and then the economy bounced back very strong in the second and third quarters with a sharp uptick in new jobs. If you think you know what the economy is doing right now, you are probably delusional. About the only thing I can say with confidence is that these are uncertain times. I have no idea how the markets will respond on Monday. The dollar moved a little lower but it is still strong. Commodity prices moved lower despite a weaker dollar. The yield on the 10-year Treasury note slipped 7 basis points to 1.84%. Stocks could move up Monday on the idea that bad news is good; meaning the weak jobs numbers will restrain the Fed from raising rates in June or maybe even this year; or stocks might drop next week on the idea that bad news is bad; the economy is weak and that will hurt sales and profits.

I don’t think the Fed knows either. Speaking at a conference in San Francisco last week, Janet L. Yellen, the Fed’s chairwoman, warned that the recovery was fragile, despite steady progress on the jobs front. The Fed went from being “patient” about raising rates to being data dependent.

I do think this lousy jobs report means there is almost no chance the Fed will raise rates in June. My thinking is that the Fed does not want to make the mistake of shocking the markets, because markets tend to fall down when they are shocked. So they will want to see next month’s jobs numbers (because they are data dependent) and then they will want to communicate their position to the markets, and then they will want to communicate again (just to make sure everybody knows what they think without any equivocation), and that pushes a rate hike back to August at the earliest, and only if we see a strong rebound in economic data and an improving labor market. If the data remains squishy or turns a bit nasty, we might not see a rate increase this year.

We’ve made it through the first quarter and we still don’t know where we’re headed. Maybe the cold weather in the Northeast and the drought in the West hurt the economy; maybe the West Coast port slowdown was a factor; maybe the stronger dollar is hurting profits for multinationals, but the rest of the world’s economies are acting as a drag on the US. And then we need to remember that the economy still added jobs. It’s not like we lost 800,000 jobs; this is not 2008. The unusual thing about recent labor market data is the consistency of positive news. Over the last 30 years we’ve had just four calendar years in which we didn’t have at least one month with net private sector job creation of less than 100,000. Those years were 1987, 1994, 2013 and 2014. Prior to the relatively weak results for March, we had a streak of 12 consecutive months with private sector job gains exceeding 200,000. That was the first time that has happened since 1977. The trend is still up…, for now.

Friday, May 02, 2015 - April Jobs Report

Financial Review with Sinclair Noe

DOW – 45 = 16,512
SPX – 2 = 1881
NAS – 3 = 4123
10 YR YLD - .01 = 2.59%
OIL + .57 = 99.99
GOLD + 15.70 = 1301.60
SILV + .44 = 19.56

Today is another Jobs Report Friday. We will go into quite a bit of detail here because really, most everything we talk about in regard to economics begins with work and jobs. It is my hope that you will join us here on the first Friday of each month to get your comprehensive, fact based coverage of the jobs report.

Last month the economy added 288,000 net new jobs, and the unemployment rate dropped to 6.3%. April marked the biggest monthly gain in jobs since January 2012, when the economy added 360,000 jobs. Employment gains for February and March were revised higher by a combined 36,000; that raised the monthly average to 214,000 jobs a month since the start of the year. Through the first 4 months of 2014, the economy has added 857,000 payroll jobs, slightly better than the first 4 months of 2013, despite the harsh winter this year.

In the current 58 month expansion, employers have added more than 200,000 jobs per month in 38% of the months. Current job creation performance is stronger than it was in the business-cycle expansion that occurred during the recovery in the early 2000s, even when a real estate construction bubble fueled growth.  Today’s job creation pace lags well behind previous recent economic recoveries, such as 1970, or 1975 that saw job creation above 200,000 in about 60% of months. Needless to say, 200,000 jobs a month means a lot less today with a population that is more than 100 million people larger than it was in 1970. Total employment is now only 113,000 below the previous peak, so we should top that next month; however, the overall population has increased in the past 6 years, so there are still millions of people without jobs.

The report came in far above expectations. The consensus estimates called for 210,000 new jobs and the unemployment rate inching down to 6.6%, however there was a wide range of estimates.

The drop in the unemployment rate to 6.3% was the biggest monthly drop in 31 years and the unemployment rate is at the lowest level since 2008, but the drop in the headline rate was for the wrong reasons; the participation rate declined to 62.8% from 63.2%, meaning the labor pool fell by 806,000 workers. The unemployment rate is measured against a labor pool of people who are considered actively looking for work or working. When someone stops looking for work, they stop being counted, although it doesn’t necessarily mean they wouldn’t like work.

There are 2 major reasons why the participation rate has dropped: the first reason is demographics, and the second is the economic downturn.

Looking at demographics, the baby boomers are retiring in massive numbers, and not always voluntarily. However, many boomers are re-entering the workforce in a stealthy manner; the highest rate of entrepreneurship activity belongs to the 55-64 age group. It turns out the recession spurred new-business formation. In a "necessity is the mother of invention" scenario, it appears that many people who lost jobs started their own businesses. Of course, it might take some time for a new venture to be profitable and in the meantime, those people might not be counted as actively seeking jobs.

Meanwhile, younger people are staying in school, either going back to school for training or re-training, or dragging out school because of the high cost of education. An interesting point here is that unemployment for young adults age 20-24 dropped from 12.2% to 10.6% in April. Millennials getting jobs; or dropping out of workforce. We don’t know for certain, but one possible explanation is that graduates from the Class of 2013, that have been biding their time looking for a job or just unable to find a job, suddenly got very serious about taking any kind of job as the Class of 2014 prepares to enter the workforce.

Another age group we watch is the 25 to 54 year olds; they’re in their prime working years, too young to retire and unlikely to be in school. The 25 to 54 participation rate declined in April to 80.8% from 81.2% in March, and the 25 to 54 employment population ratio decreased to 76.5% from 76.7%. The participation rate for this age group should increase as the economy improves.

The other reason is the economic downturn, many people lost jobs and have had a very difficult time finding work, driving long term unemployment to unacceptable levels. The recent loss of unemployment benefits for the long-term unemployed is another way in which people fell from the ranks; in order to receive unemployment benefits, one has to actively look for work. As the benefits were cut, people still unemployed were cut from the ranks. Extended benefits were cut off beginning in late December. If the expiration of benefits was causing hundreds of thousands of people to drop out of the labor force, it should have showed up in the data in January, or February. It didn’t. Maybe the unemployment rate fell because of 806k drop in labor force, a lagged effect from expiration of unemployment insurance, or maybe there is just some statistical noise. We won’t know for sure until we see a few more months data.

What’s also odd about the decline in the labor force is how it happened. The number of so-called re-entrants, unemployed workers who have started looking for jobs again, fell by 417,000. That’s the biggest drop since the government began keeping records in 1967.  And new entrants into the labor force, such as graduates or immigrants, fell by 126,000. That’s the biggest decline in more than five years. Put another way, two-thirds of the drop in the labor force stemmed from people choosing not to enter in the first place. Normally a decline takes place when workers exit the labor force.

According to the BLS, there are 3.452 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.739 in March. This is trending down, but is still very high. And it does not mean that 300,000 long term unemployed workers found jobs; they just stopped being counted.

And there is still quite a bit of slack in the labor market, with approximately 7.5 million workers employed part-time for economic reasons; people who have had their hours cut back or people working part-time because they can’t find full-time work. When you add in those under-utilized workers, you get a different measurement known as U-6, which dropped to 12.3% from 12.7% in March. The number of people holding multiple jobs jumped by 133,000 from April 2013 to April 2014. Women almost entirely led this statistic, with the number of employed single mothers increased 1.4% over the past year.

Hiring was widespread and it doesn’t look like there was any one industry or sector that had an unusual jump. Professional services added 75,000 jobs, but about one-third were temporary positions. Employment and temporary help services added 28,000 jobs. Retailers added 35,000 jobs, bars and restaurants added 33,000 and the construction industry hired 32,000 workers. Industries where minimum-wage employment is most prevalent in the economy, accounted for 40% of total new private-sector job creation in April, excluding health care. Manufacturers generated 12,000 jobs, but this was disappointing in light of recent economic data pointing to increased manufacturing activity; yesterday, the ISM reported it manufacturing index had increased to 54.9 last month, up from 53.7 in March. Government also added 15,000 jobs, with state and local governments adding 18,000 jobs and federal cutting 3,000 positions.

Average hourly wages were unchanged at $24.31, reducing the year-over-year gain to just 1.9%. Consumer spending has been outpacing income growth, resulting in low saving rates, meaning workers have less discretionary funds, meaning a dwindling likelihood they will go out and spend at an increasing rate. Paychecks have actually become leaner since the recession officially ended. Real median weekly earnings for full-time wage and salary workers during the first three months of this year were down 3% from the end of the recession.

Looking at the types of jobs making up employment also provides a cause for concern. Among 13 industries that make up total US private-sector employment, the 5 with the lowest nominal average weekly earnings represented about 52% of private-sector employment gains over the past year. Leisure and hospitality employment showed the strongest growth among low-earning industries, added 412,000 jobs over the year through April, representing about 17% of total private-sector job gains.

Middle-earning industries, professional and business services, construction and manufacturing, represented about 40% of annual job gains. While higher-earning industries made up about 8% of added employment. Among the five industries with the highest weekly earnings, private-sector employers added about 194,000 of these jobs over the past year. Longer-term trends show lopsided jobs growth, with lower-wage employment ramping up in recent years. During the recession, lower-wage industries made up 22% of job losses. But over the past four years, these jobs made up 44% of employment growth, according to a recently released report from the National Employment Law Project. One indication that workers aren’t particularly confident is that quitting is below pre-recession levels, signaling that many workers are unwilling to trade some job stability and security to advance their careers.

Today’s jobs report was good, one of the best months we’ve seen in a long time, and we have a 58 month trend of job gains, which is a heck of a lot better than bleeding jobs, but the trend is still not strong enough. Nearly five years since the economy began expanding, the labor market continues improving, but at a frustrating pace for the 10 million unemployed workers and 3 million people not counted as unemployed who still currently want a job. Ongoing elevated unemployment is not only a serious drag for those families enduring it, but it will continue to drag on the overall economy until lawmakers get serious about full employment and creating quality jobs that deepen and secure the middle class.