Friday, May 6, 2016

April jobs report: good on wages, but ongoing signs of late cycle deceleration

- by New Deal democrat

  • +160,000 jobs added
  • U3 unemployment rate unchanged at 5.0%
  • U6 underemployment rate down -0.1% from 9.8% to 9.7%
With the expansion firmly established, the focus has shifted to wages and the chronic heightened unemployment.  Here's the headlines on those:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  up +81,000 from 5.712 million to 5.793 million
  • Part time for economic reasons: down -61,000 from 6.123 million to 5.962 million
  • Employment/population ratio ages 25-54: down -0.3% from 78.0% to 77.7% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +$.05 from $21.40 to $21.45,  up +2.5%YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
February was revised downward by -12,000.  March was also revised downward by -7,000, for a net change of -19,000. 

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were neutral to mixed.
  • the average manufacturing workweek was unchanged at 41.7 hours to 41.- hours.  This is one of the 10 components of the LEI.
  • construction jobs +1,000.  YoY construction jobs are up +261,000.  
  • manufacturing jobs increased by +4,000, and are now *down* -19,000 YoY
  • temporary jobs - a leading indicator for jobs overall increased by +9,300 (but is still down from December's high).

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 133,000 from 2,412,000 to 2.545,000.  The post-recession low was set 8 months ago at 2,095,000.

Other important coincident indicators help us paint a more complete picture of the present:
  • Overtime was unchanged at 3.3 hours.
  • Professional and business employment (generally higher-paying jobs) increased by +65,000 and are up +511,000 YoY.

  • the index of aggregate hours worked in the economy rose by 0.4 from  105.1 to 105.5. 
  •  the index of aggregate payrolls rose by 1.0 from 127.7 to 128.7.
Other news included:      
  • the alternate jobs number contained in the more volatile household survey decreased by -316,000 jobs.  This represents an increase  of 2,495,000  jobs YoY vs. 2,692,000 in the establishment survey.   
  • Government jobs fell by -11,000.   
  • the overall employment  to  population ratio for all ages 16 and above fell  by  -0.2  from  59.9   to 59.7  m/m but is up +0.4% YoY.  
  • The  labor force participation rate fell  -0.2%  from 63.0%  to  62.8%  and is now up +.0.1% YoY (remember, this incl udes droves of retiring Boomers).  

This looks like a classic late-cycle expansion report to me.  The more coincident measures, like aggregate hours and wages, improved significantly, and were the best parts of the report, which is good for labor.  Many of the leading indicators in the report, however, declined, including revisions to prior months, the short term unemployed, the YoY change in employment, and the failure of temporary jobs to make a new high (although they were positive this month).

While the U6 underemployment rate declined slightly, progress in involuntary part time employment and those out of the work force who want a job now has stalled.  The decline in the employment population ratio and the labor force participation rate will probably get lots of notice, but all these really did is take back some of the strong numbers in the last few reports, so I am less concerned about those -- although from a long-term point of view, it remains a big negative that so far into this expansion these participation numbers remain so depressed compared with 10 years ago.

So -- some definite bright spots, no cause for imminent concern, but showing ongoing signs of late cycle deceleration

From Bonddad:

The primary reason for the drop was a decline in retail and construction employment.  Retail lost 3,000 employees while construction only added 1,000 jobs.  In the previous report, these numbers were 39,000 and 41,000, respectively.

This highlights the potential topping out of retail sales and new home construction for this cycle.  The following chart clarifies:

The above chart shows retail sales and new home starts for the last year, both converted to a scale of 100.  Retail sales (the red line) have moved sideways since July 2015.  New housing starts (the blue line) moved sideways for the last year.

The latest GDP report confirmed the retail slowdown but not the housing numbers.  PCEs are slowing; they increased 3.6% in 2Q15 but only 1.9% in the latest report.  However, residential investment increased a very strong 14.8%.  Here's a table of the data: