Summary: Employment is the weak link in the recovery. The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed (jobs and wages growing only slowly) — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus (now fading). Here we look at the October report, which contains many useful insights. The key point: it gives no evidence that the widely expected second half growth acceleration has begun.
- The big picture
- Household survey
- Establishment survey
- Other important metrics
- Other posts in this series
- For more information about US economy
(1) The big picture
Here we examine the October employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy.
The theme of this report, the words most often used, is steady slow growth. It paints a picture consistent with the many other streams of information about the economy. No signs of the long-awaited acceleration back to average growth rates. This is a major factor in the Fed’s decision when to taper.
We should also consider the price paid for this slow growth. Not just the $776 billion in debt the USA accumulated during the past 12 months (4.5% of GDP), but also the not-yet-known results of five years of zero-interest rates and three rounds of quantitative easing (the third and largest still running). This does not show that economists know nothing, or that these stimulus programs do not work. It shows that the economy remains weak, or perhaps even sick (supported by the government stimulus).
I will update this if I find additional useful analysis.
(2) The Household survey
The Current Population survey is a simple survey of households. Compared to the survey of businesses it has large error bars; there are no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.
Here are the numbers for October, in thousands, seasonally adjusted. Highlights:
- Large drop in employment (735 thousand); small decrease in unemployed.
- 60% of that employment drop results from the number of people on temporary layoff increasing by 448,000 — mostly people affected by the debt crisis
- The small rise in total unemployed does not match the increase in layoffs; I don’t know why the sums on Table A-11 do not match table A-1.
- I do not understand the large drop in employment, above the increase in layoffs.
- Some studies show that the Household survey picks up inflection points earlier than the Establishment survey. But it is also more volatile, with a larger margin of error.
|Description||September 2013||October 2013||Change||Change|
(3) The establishment survey
The second survey asks employers to report the number of jobs. Over one or more quarters it usually shows a similar pattern of growth as the household survey, giving us confidence in the results. During the past year it has showed slow improvement at a slightly faster rate than the household survey. It has smaller error bars, but gets large (sometimes massive) revisions.
Highlights for October:
- The gain of 204 thousand jobs (SA) is aprox the same as the average of the past 12 months (194 thousand/month, SA).
- The manufacturing boom that so obsesses business journalists and Wall Street added 29 thousand jobs in the past 12 months (+0.4%) — party on!
- Positive revisions: job gains in August and September combined were 60,000 higher than previously reported.
- With revisions this is a better report than the usual of the past year.
Here is the YoY picture, in thousands, not seasonally adjusted:
|Description||October 2012||October 2013||Change||Change|
(4) 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 (source here) of October 2012 and 2013 (seasonally adjusted).
- A year ago: 363 thousand
- 2 November 2013: 336 thousand (-7.4%)
(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. U-6 includes people with part-time jobs who prefer full-time work, and so includes underemployment. 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 14%; U-6 down only 5% (NSA).
|Metric||October 2012||October 2013|
(5) Another important metric: wages and hours worked
Looking at nonfarm private workers in October 2012 vs. 2013 (seasonally adjusted), from the Establishment Report:
- Average hours worked per week: 34.3 vs. 34.4 (tiny change)
- Average hourly earnings: $23.58 vs. $24.10 (up 2.2%, +1.0% over the CPI)
- Average weekly earnings: $808.79 vs. $829.04 (up 2.5%, +1.3% over the CPI)
The September-October increase in hourly and weekly wages was at a slower rate than that of the past year. Few signs of acceleration after a generation of stagnation, the Wage Inflation so dreaded by corporations and economists.
(6) Other posts looking at the economy today
- A look at the state of the US economy. Join me in confusion!, 13 July 2013
- The US economy is slowing. Things might get exciting if this continues.,
17 July 2013
- About today’s jobs report: mixed news. No prize in this box.,
6 September 2013
- Look at the economy to see why today’s jobs report is so important!,
6 September 2013
- Warnings about the economy from people you should listen to, 13 September 2013
- Let’s reflect on the course of the course of the US economy. Not a pretty picture., 8 September 2013
- Do you look at our economy and see a world of wonders? If not, look here for a clearer picture…, 21 September 2013
(7) For more information about the US economy
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- 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
- The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
- America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
- America’s strength is an illusion created by foolish borrowing, 10 October 2012