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The astonishing news about the December jobs report: it shows continued slow growth

13 January 2014

Summary: Manufacturing is strong, household income is growing (driven by gains for the top quintile). Employment is the weak link in the recovery. The news media focuses on the monthly changes, mostly noise. Strong months confirm the narrative; excuses explain the weak months. In fact the economy’s trend remains locked near the 2% stall speed — supported by years of fiscal and monetary stimulus (now fading). Here we look at the December report. The key point: it gives no evidence that the widely expected second half growth acceleration has begun.

Economy

Contents (revised from the usual format)

  1. The big picture
  2. Did bad weather kill jobs?
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Wages and hours worked
  7. What are the hot sectors for jobs?
  8. For more information about

(1) The big picture

This report dashes the hopes — again — of those hoping the US economy has returned to “normal” growth. The growth of non-farm payrolls was 75 thousand (SA), not statistically significant from zero (the minimum significant change is 92 thousand; details here).

This is no surprise to those of us who have said for four years that the US remains locked in a slow growth mode (aprox 1.7% in 2013).  Now eyes turn to 2014, with the consensus forecast seeing faster growth 2.6% — but far slower than the 3.5% expected for 2013 in November 2011.

Consider the price paid for this slow growth. Not just the $774 billion in debt the USA accumulated during the past 12 months (4.6% of GDP), but also the as yet unknown results of 5 years of zero-interest rates and 3 rounds of quantitative easing (the third and largest still running, to be tapered in 2014).

As for 2014, there are too many variables to do more than guess.

(2)  Did bad weather kill jobs?

Most questions and objections people raise to the Bureau of Labor Statistics have been considered in detail by their experts. Such as the effect of bad weather. From the report about December:

Unusually severe weather is more likely to have an impact on average weekly hours than on employment. Average weekly hours are estimated for paid time during the pay period, including pay for holidays, sick leave, or other time off.

… In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work without pay for the {employee’s} entire pay period. … Employees who receive pay for any part of the pay period, even 1 hour, are counted in the payroll employment figures.

It is not possible to quantify the effect of extreme weather on estimates of over-the-month change in employment.

Below is an attempt to quantify it. Note that this does not show the effect on the jobs numbers! Also, last month’s weather-related job losses were high, but not much higher than previous peaks during the past decade.

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Effect of weather on employment
Here is the BLS report from February 2012 about bad weather’s impact on jobs.

(3) The Household survey (CPS)

The Bureau of Labor Statistics conducts two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy.

The Current Population survey looks at households. Compared to the survey of businesses it has large error bars; there are no revisions. It’s the basis for the headline unemployment rate, and gives useful data not in the more-accurate business (establishment) survey. Also, some research suggests that the household report shows inflection points before the establishment survey.

The monthly employment gains have been quite volatile, averaging about 60 thousand per month (SA) during the past five months and 65 thousand during the past three months — a pitifully slow growth rate of roughly 1% per year.

The big story in the household report has been the decline in the participation rate. For an analysis see “A Closer Look at the Decline in the Labor Force Participation Rate“, Federal Reserve of St Louis, October 2013.

(4) The establishment survey (CES)

The second survey asks employers to report the number of civilian non-farm jobs. Although it usually shows a similar pattern of growth as the household survey, during the past year it has showed slow improvement — but at a faster rate than the household survey. It has smaller error bars, but gets large (sometimes massive) revisions.

Highlights for December:

  • The gain of 75 thousand jobs (SA) is not statistically significant.
  • BLS calculates the rough equivalent to the this from the CPS data: -8 thousand, confirming the CES result.
  • The average gain over the last two months is 157 thousand (SA).
  • The average gain over the past 12 months is 183 thousand/month, 1.6% per year (NSA). Faster than the CPS, but still slow.
  • The manufacturing boom that so obsesses business journalists and Wall Street added a total of 77 thousand jobs over the past 12 months (+0.6%) — party on!

(5) Measures of Unemployment

(a)  New claims for unemployment insurance are one of the most accurate and useful real-time measures of the job market. Compare the change in the 4-week moving averages of December (i.e., the 4 weeks ending January 4) and the same period in 2012 (seasonally adjusted; source here). December’s rise in claims erased much of 2013′s improvement.

  • A year ago:  369 thousand
  • Last month:   358 thousand (-3%)

(b)  The unemployment rate — a complex metric that gets far too much attention

The analysts at BLS calculate six measures of unemployment, from narrow to broad definitions. None is more real than the others; none are easily comparable to the rough estimates of unemployment during the 1930s (the first reliable surveys were in the early 1940s). Most people consider U-3, or U-4, or U-5 as the most useful measure. The broadest (U-6) includes people with part-time jobs who prefer full-time work, and so includes the underemployed. These below numbers are not seasonally adjusted.

Any way you count it, unemployment has decreased during the past year. But the broader the measure, the slower the decline. U-1 down 17%; U-6 down only 10% (NSA).

Metric  December 2013  December 2014
U-1 4.2% 3.5%
U-2 4.3% 3.5%
U-3 7.6% 6.5%
U-4 8.3% 7.0%
U-5 9.2% 7.9%
U-6 14.4% 13.0%

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(6) Another important metric: wages and hours worked

Looking at nonfarm private workers in December 2013 vs. 2014 (seasonally adjusted), from the Establishment Report:

  • Average hours worked per week: 34.5 vs. 34.4 (unchanged)
  • Average hourly earnings: $23.75 vs. $24.17 (up 1.5%, unchanged after inflation)
  • Average weekly earnings: $819.38 vs. $831.45 (up 1.5%, unchanged after inflation)

No signs of acceleration after a generation of stagnation, or of the Wage Inflation so dreaded by corporations and economists.

(7)  What are the hot sectors for jobs?

From the BLS Highlights presentation about the December CES.

(a)  Everybody wants to work in the Information Sector!  Too bad its not generating jobs.

Employment in the Information Sector

BLS CES Highlights, December 2013

(b)  Temping is a hot field: more jobs, but no benefits and no security.

Employment in Temporary Services

BLS CES Highlights, December 2013

(c)  Education and health services

Employment grew by 321,000 in 2012, 208,000 in 2013, and zero in December. That was the weakest monthly change for this sector since September 2010. Both health care and education are overdue for radical restructuring, and its employment might stabilize — or shrink — over the next decade. For details see The education crisis spreads to the professions. Watch the universities crack, 2 January 2014.

Employment in Health & Education Services

BLS CES Highlights, December 2013

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Better days are coming, for some of us.

Better days coming, for some of us.

(8)  For More Information

(a)  Other posts looking at the economy today:

  1. A look at the state of the US economy. Join me in confusion!, 13 July 2013
  2. Let’s reflect on the course of the course of the US economy. Not a pretty picture., 8 September 2013
  3. Do you look at our economy and see a world of wonders? If not, look here for a clearer picture…, 21 September 2013
  4. The great monetary experiment enters a new phase, with America as the stakes, 27 October 2013
  5. The key to understanding the future of QE3, and the future of our economy, 12 November 2013
  6. Larry Summers gives us the bad news. Worse, the only solution is more of the same., 20 November 2013

(b)  Other posts about the US economy

  1. A certain casualty of the recession: the US Government’s solvency, 25 November 2008
  2. Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
  3. The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
  4. America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
  5. America’s strength is an illusion created by foolish borrowing, 10 October 2012

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8 Comments leave one →
  1. DaShui permalink
    13 January 2014 1:18 pm

    Population growth is 1%, so there is no overall growth per capita.

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    • 13 January 2014 1:59 pm

      DaShul,

      Thanks for raising that point!

      This post was grossly long, so I cut most of the statistics. The employment-population ratio is perhaps the most important metric of job growth. As you note, there has been almost no improvement since the crash. Thirty years of progress erased.

      Long-term perspective (click to enlarge):

      Employment-Population Graph

      .
      Short-term perspective (click to enlarge):

      Employment-Population graph

      Like

  2. 13 January 2014 3:12 pm

    My wife, who’s in medicine, tells a horror story where a very ill patient’s EKG readings were normal, albeit a bit weak, for most of an overnight shift. In the morning it was discovered that the patient died hours and hours earlier, their pacemaker kept their heart twitching in such a way that the readings made the patient look alive to the machine. That tale often comes to mind for me when examining US economic data these days.

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    • 13 January 2014 3:58 pm

      Patrick,

      We cannot say for sure, of course, but there is much evidence that the US economy underlying condition might be weak — but not as severe as your analogy suggests. The fiscal stimulus is shrinking (a negative to GDP growth), and few economists believe the overall economic support provided by QE3 is very large.

      Like

  3. Thomas More permalink
    14 January 2014 7:39 am

    Presumably FM has his tongue firmly in cheek when writing the headline for this post: “The astonishing news…” Well, anyone who has studied economic history and hasn’t been blinded by the delusions of the Chicago School of Economics pretty well accepted the fact that after a major balance-sheet crash caused by a huge asset bubble popping, you don’t get a V-shaped recovery. Those V-shaped recoveries typically appear after the central bank slams its foot on the brake by sharply increasing interest rates, then lower interest rates and pent-up demand takes off like a rocket.

    In this case, though, it’s very different, because there’s a great deal of evidence of broad-based decline in aggregate demand. Evidence: see the Federal Reserve Bank of San Francisco newsletter “Aggregate Demand and State-Level Employment,” 11 April 2013.

    What explains the sharp decline in U.S. employment from 2007 to 2009? Why has employment remained stubbornly low? Survey data from the National Federation of Independent Businesses show that the decline in state-level employment is strongly correlated with the increase in the percentage of businesses complaining about lack of demand.

    This Federal Reserve bank report does an excellent job of debunking the assertion by Chicago school economists that the economic slowdown is due to “investment uncertainty.”

    And why has aggregate demand collapsed? Because everyone from businesses to individuals to entire states is drowning in debt. As a result they’re spending every dime that comes in deleveraging that debt instead of investing it or spending it on consumer goods.

    The other obvious reason for such a slow recovery is, as FM keeps pointing out, we have still not reformed our financial system. During the 2000s, Wall Street and our banking system became infested with massive endemic fraud.

    Back in 2012, the major US banks settled a federal mortgage-fraud lawsuit for $95,000,000. The suit was filed by Lynn Szymoniak, a white-collar fraud specialist, whose own house had been fraudulently foreclosed-upon. When the feds settled with the banks, the evidence detailing the scope of their fraud was sealed, but as of last week, those docs are unsealed, and Szymoniak is shouting them from the hills. The banks precipitated the subprime crash by “securitizing” mortgages — turning mortgages into bonds that could be sold to people looking for investment income — and the securitization process involved transferring title for homes several times over. This title-transfer has a formal legal procedure, and in the absence of that procedure, no sale had taken place. See where this is going?

    The banks screwed up the title transfers. A lot. They sold bonds backed by houses they didn’t own. When it came time to foreclose on those homes, they realized that they didn’t actually own them, and so they committed felony after felony, forging the necessary documentation. They stole houses, by the neighborhood-load, and got away with it. The $1B settlement sounded like a big deal, back when the evidence was sealed. Now that Szymoniak’s gotten it into the public eye, it’s clear that $1B was a tiny slap on the wrist: the banks stole trillions of dollars’ worth of houses from you and people like you, paid less than one percent in fines, and got to keep the homes.

    Source: “Unsealed court settlement documents reveal banks stole $trillions’ worth of houses,” 12 August 2013.

    Meanwhile, the epidemic of fraud and legalized thievery rotting the financial system has still not been cured.

    The International Monetary Fund has warned that the “scramble” for a diminishing pool of safe assets poses a fresh risk to global financial stability.

    With demand for rock-solid investments on the increase, the Washington-based IMF said a lack of supply could lead to “more short-term volatility jumps, herding behaviour and runs on sovereign debt”.

    The Fund predicted that the drop in the number of countries whose sovereign debt was considered safe could remove $9tn (£5.6tn) from the supply of safe assets by 2016, roughly 16% of the total. “Safe-asset demand is expanding at the same time that the universe of what is considered safe is shrinking,” it said.

    Source: “Financial stability under threat from lack of safe assets, IMF warns,” The Guardian, 11 April 2012.

    “Lack of safe assets” appears to be a polite code phrase meaning “the global financial system is so rotten with scams and ripoffs that governments aren’t doing anything to fix that people who want to invest their money are willing to sink into government-backed TIPS bonds and suffer a negative interest rate just to be sure their life savings aren’t going to get looted by an out-of-control lawless thieving financial system.”

    Put that all together, and you bet the unemployment is still high. Business aren’t willing to invest because they’re been so badly burned by all the bogus investments the scamming banks sold them. Individuals aren’t willing to invest because their mortgages are underwater and their life savings just went in smoke in one of the biggest financial frauds in history. States can’t invest because their revenues have plummeted now that everyone is spending their income paying down a mountain of debts instead of buying houses and cars and appliances that boost states’ revenues with taxes.

    Looks like it’s about time to start burying hundred-dollar bills in bottles and hiring people to dig ‘em up…

    Like

    • 14 January 2014 7:47 am

      Thomas,

      I agree that the belief that there is little basis for belief that uncertainty has been a major factor depressing investment or consumption.

      As for “astonishing”, that is a factual statement. The actual was 75,000. The forecasts, from a preview of the jobs report in Business Insider’s:

      “Chief among them is ADP’s monthly National Employment Report (released Wednesday), which estimated that 238,000 workers were hired to private-sector payrolls December — a number well above consensus expectations for a 200,000 print that also marked an acceleration in hiring from November’s upward-revised 229,000 figure.

      … The median estimate of 90 economists polled by Bloomberg is for net nonfarm payroll creation of 197,000 in December. However, 69 of those estimates were submitted before Wednesday’s ADP release.

      Of the 21 estimates submitted after the ADP release, the median estimate is 205,000 — a number that may provide a more accurate reflection of true expectations.”

      Like

    • 14 January 2014 7:51 am

      Thomas,

      I corrected my typo above.

      I meant to say “there is little basis for belief” in the effects of uncertainty.

      Like

  4. guest permalink
    14 January 2014 9:54 am

    ” During the 2000s, Wall Street and our banking system became infested with massive endemic fraud.”

    A few keywords: S&L, Michael Milken, Barry Minkow, Phar-Mor, BCCI…

    The financial system was already infested with massive endemic fraud well before the 2000s. The interesting thing is that the last prophylactic measures were dismantled (in 1994, 1999, 2000) despite those earlier scandals, and despite the bad experience with deregulation (Depository Institutions Act of 1982 and its effect on S&L).

    Like

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