Friday, September 6, 2013

August jobs report: yellow flag for the second month in a row

- by New Deal democrat

The headline for August 2013 employment is that 169,000 jobs were added, and the unemployment rate declined to 7.3%, a new post-recession low and in line with my examination of initial jobless claims yesterday - but keep in mind that the unemployment rate is a lagging indicator. While there were many positives, mainly they simply took back declines from last month. June and July were both revised down, the second month in a row of negative revisions. Negative revisions are not a good sign. We also had a negative number from the very volatile household report, which often turns first.

First, let's look at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now. These were positive or neutral.
  • the average manufacturing workweek increased 0.1 hours from 40.7 hours to 40.8 hours, but is still below where it was 2 months ago. This is one of the 10 components of the LEI and will affect that number positively.

  • construction jobs were unchanged.

  • manufacturing jobs rose for the for the second month in a row, after 4 months of decline, up 14,000.

  • temporary jobs - a leading indicator for jobs overall - increased by 13,100.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - was unchanged, and remains about 125,000 off its lows.

Now here are some of the other important coincident indicators filling out our view of where we are now:
  • The average workweek for all workers increased 0.1 to 33.7 hours.

  • Overtime hours increased 0.2 to 3.4 hours, which simply reversed last month's decline.

  • the index of aggregate hours worked in the economy increased 0.4 hours from last month's level of 98.4 to 98.8. This is also a post-recession record.

  • The broad U-6 unemployment rate, that includes discouraged workers declined from 14.0% to 13.7%, also a new post-recession low.

  • The workforce declined 37,000. Part time jobs fell by -334,000. I predict there will be silence from all those Doomers whose metric of part-time jobs since the beginning of this year looks shot to hell.
Other news included:
  • the alternate jobs number contained in the more volatile household survey actually decreased by -115,000 jobs.

  • Government jobs actually increased by 17,000.

  • Combined revisions to the June and July reports totalled a loss of -74,000 jobs, with the reports now showing +172,000 and +104,000 jobs, respectively. Downward revisions are not a good sign, although this is only one month.

  • average hourly earnings increased from $23.98 to $24.05. The YoY change increased from +1.9% to +2.2%, meaning that YoY average real wages have increased again.

  • the employment to population ratio declined back to 58.6%. The labor force participation rate actually declined -0.2% to 63.2%

This was a positive report, and the leading parts of the report were either positive or neutral. That's all good. That aggregate hours increased strongly is probably the best single item in the report. That part time jobs declined substantially means the Doomers will have to find something else to hang their hats on (and, memo to Mish, in a showdown between initial jobless claims and Gallup, go with initial jobless claims). But after industrial production and retail sales stalling last month, I really don't like the continuing downward revisions to past employment reports. And of course there is nothing to like in the continued flatness of the employment to population ratio.

With the recent marked deceleration in the economy as shown by the last three quarters of GDP reports, with the long leading indicators of interest rates and housing turning negative, the ongoing Sequester that was so awful that it was never supposed to happen, and the approaching debt ceiling debate in Congress, this report, while positive for now, and consistent with continued expansion for the rest of this year, maintains the hoisting of a yellow flag for 2014.