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Patrick J. O'Keefe Shares Expectations for January 2015 Jobs Report


2/3/15

by Patrick J. O'Keefe, Director of Economic Research

On Friday, February 6, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States through January 2015.

Forecast:

  • With total nonfarm employment having concluded 2014 with the strongest quarterly gain in 15 years, we expect the BLS to report that while jobs growth decelerated in January, the economy still added 225,000 net new jobs (more than the monthly average of any year, other than 2014, since 1999).
  • We also believe the BLS will likely report that labor force participation rose slightly as the number of jobholders established yet another record and the count of jobseekers rose modestly on the household sector’s growing optimism regarding jobs prospects.
     

For a chartbook displaying the most recent labor market indicators, click here.

Background - Employment [Charts 1-29]: Total nonfarm employment increased by almost 3.0 million (+2.2%) during 2014 and scored the largest annual gain since 1999. The average monthly increment was 246,000 net new jobs.

The growth was concentrated in the private sector but, unlike earlier in the recovery, it was bolstered by public sector increases. After contracting during most of the jobs recovery, government employment began to increase steadily (if only modestly) in February of last year and has since added 113,000 jobs.

The jobs recovery, which began in March 2010, required 51 months (through May 2014) -- more than four times the post-1948 average -- to regain the 8.7 million jobs that were lost between the pre-contraction peak (January 2008) and nadir (February 2010).

At year’s end, total employment exceeded the pre-recession peak by 2.0 million jobs. Employment gains in 2014 exceeded those of 2013 by more than one-quarter (26.6%). As noted above, the acceleration is attributable to the acceleration of growth in the private sector and the public sector’s shift from shedding jobs in 2013 (down 34,000) to adding them in 2014 (up 91,000).

Although the economy posted record-level employment in 2014, the recovery had been erratic through the first quarter of 2014. Since then its pace has been more consistent and the three-month average gain has exceeded 240,000 for nine consecutive months, a streak last seen some 20 years ago, in March 1995.

The employment recovery has entailed a shift in the distribution of jobs. From March 2010, when the jobs recovery began, through December 2014, total employment increased  by 10.7 million (+8.2%).  Over that span, private payrolls rose 11.2 million (+10.5%). But public sector employment continued to decline even as private rosters recovered. In December 2014, government payrolls were 523,000 (-2.3%) below where they stood when the decline in total nonfarm employment bottomed in February 2010.

The jobs recovery also involved a shift in the pattern of private sector growth:

  • Goods producers’ payrolls in December had regained 1.7 million of the 4.3 million jobs lost from the pre-contraction peak to the downturn’s bottom.  The ullage owes to shortfalls in manufacturing (1.5 million jobs) and construction (1.3 million jobs) that were partially offset by 200,000 net new jobs in the extraction sector (viz., logging, mining and drilling).
  • Private service providers’ payrolls, on the other hand, have added 9.5 million jobs since the trough of the downturn, more than compensating for the loss of 4.5 million jobs during the contraction.  Services sector employment in December was 5.0 million (+5.4%) greater than at the pre-recession peak.
     

Public sector employment in December, as noted earlier, continued to contract through much of the recovery. As a consequence, there are still 433,000 (-2.0%) fewer government jobs than in January 2008 when the employment downturn began. Reductions by local governments, which provide almost two-thirds (64.4%) of all government jobs prior to the recession, account for four-fifths (81.4%) of the ullage.

Background - Labor Force [Charts 30-41]: The employment data discussed above are based on a survey of employers.  A separate survey of households generates data on the labor market status of residents.  To be counted as a labor force participant, an individual must be a non-institutionalized civilian, 16 years or older and either a jobholder or jobseeker (i.e., having actively sought work in the prior four weeks). 

As discussed in more detail below, December saw the national labor force shrink marginally as the number of jobholders was flat (+0.2%) and the count of jobseekers declined (-4.2%).

Labor Force Participation: After reaching a historic peak early in 2000, the labor force participation rate (LFPR), which is the sum of jobholders and jobseekers as a proportion of the work-age population, drifted gradually downward on shifting demographic trends.

The decline accelerated with the onset of the 2008-2009 recession and the rate fell to a 36-year low (62.8%) at the end of 2013. It has hovered around that level since.

The declining LFPR masks an underlying weakness in the nation’s labor markets. If December’s LFPR had been equivalent to the pre-recession average (e.g., 66.1% in 2007), the number of unemployed would have been almost double December’s published estimate (17.2 million versus 8.7 million) and the unemployment rate 10.4% rather than the reported 5.6%.

Participation rates have declined differently by both age and gender.

In broad summary: The LFPRs of youth (16-24 years) and those in their prime earning years (25-54) declined, while participation among those 55 and older rose.  By age, female LFPRs declined less than males’ in the youth and prime-age cohorts, but from lower bases; among the above-55 cohorts, female rates rose more than males’ (again, from lower bases).

In this year’s fourth quarter (Q-4), the LFPR of youth was 55.5%; it had peaked at 65.9% in Y2K. In Q-4, participation within the prime earnings cohort was unchanged at 80.9%; it peaked at 84.2% in Y2K.

At 64.3%, participation in Q-4 among those approaching retirement had slipped a bit from the cohort’s mid-2010 rate (65.3%). And those 65-and-over had a Q-4 LFPR of 18.7%, which was marginally less than last year’s 50-year high, but more than two-fifths above the cohort’s Y2K LFPR.

In sum, there has been a sharp decline in labor force participation among youth and prime-work-age adults. Coincidentally, a larger share of an exceptionally large cohort (i.e., the Boomers) continues to participate at historically high levels. On net, fewer residents have or are seeking jobs and that has long-term implications for the U.S. economy and economic policy.

Jobseekers: The number of individuals actively seeking work declined (-4.2%) in December, reaching the lowest total since June 2008. As a consequence, the unemployment rate (i.e., jobseekers as a proportion of the labor force), also fell to the lowest since mid-2008 (5.6%).

While encouraging, the declines in the number and rate of unemployment are flattered by diminished labor force participation. As noted earlier, were the LFPR equivalent to the year before the recession (2007), the unemployment rate would be 10.4% and the number of jobseekers 17.2 million.

Jobholders: The number of individuals with jobs has increased steadily since mid-2011; over that 42-month period, there were only five negative readings.  And, as a result, the number of jobholders rose by 8.1 million (+5.8%) over that period.

During the jobs recovery, the number of jobholders has grown somewhat faster than the work-age population and, therefore, the employment rate (ER), that is the proportion of work-age individuals with jobs, has increased, but only gradually. 

From a 2007 (pre-recession) average of 63.0%, the rate fell to a 27-year low (58.2%) in October 2013. It has since inched back to 59.2%. Had the ER been equivalent to the 2007 average in December, there would have been an additional 9.3 million jobholders.

Other Labor Force Indicators: Other measures of labor force utilization were generally positive, but the improvement was muted. Underemployment (individuals involuntarily working part time) fell to a six-year low, but remains elevated. Long-term unemployment (27 or more weeks) continues to decline, albeit slowly. While the number of discouraged jobseekers ticked-up in December it remains at levels last seen in 2009.


The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither CohnReznick nor the author make any representation or warranty as to the accuracy or completeness of this information. CohnReznick and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.

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