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Economic Notes: Jobs - What's in store for Friday?


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Q: Jobs - What's in store for Friday?

On Friday, May 4, the U.S. Department of Labor ("DOL") will release data on national employment conditions during April 2012.

Forecast: We expect the DOL to report a net gain of 200,000 nonfarm jobs, which will include some upward adjustment to the March estimate. The rise will reflect moderate growth in private employment and stability in public sector jobs.

We anticipate little change in other measures of labor market conditions (e.g., unemployment and labor force participation).

View accompanying charts to this economic note.

Background - Employment: In March, total nonfarm employment rose for the 18th consecutive month, reaching 132.8 million, the highest level since February 2009. (Charts 1 and 2)

Total nonfarm employment in March was 5.2 million jobs (3.7%) below where it stood at the start of the recession in December 2007, with 4.1% fewer private jobs and 1.7% fewer government positions.

The month-on-month gain was concentrated in the private sector, where only three industries-construction, retail, and information-lost jobs. For the third consecutive month, government employment was virtually static. (Chart 3)

Although private sector employment rose for the 25th consecutive month, it notched the smallest monthly increment since October. Yet despite that deceleration, the three-month average gain (in both total and private sector employment) exceeded 200,000 net new jobs for the third consecutive month, the first time since early 2006 that this has occurred. (Charts 4 and 5)

If the recent three-month average pace were to be sustained, total employment would regain its pre-recession peak in the last quarter of 2014-seven years after the start of the recession.

The private sector jobs growth in March was more than accounted for by gains in just four industries: the rise in leisure-and-hospitality's jobs was equivalent to 32.2% of the total net increase; manufacturing, 30.6%; business services, 25.6%; and healthcare, 21.5%. The most notable decline was in retail jobs, -27.9%.

The jobs recovery began in March 2010, which was the first month of private jobs growth after shrinking for 25 months. The recovery has been disproportionately concentrated in a few "over-achieving" industries-that is, industries whose share of the recovery's net new jobs was substantially more than their average share of private employment during the five years (2003-2007) prior to the recession.

Among the most noteworthy "overachievers" are (Charts 6-9):

  • Professional and technical services-an amalgam of legal, accounting, architectural, engineering, computer-related, and consulting services-comprised 11.6% of the recovery's rise-well above its 6.3% share of pre-recession private employment; and
  • Temporary help, which included 2.2% of all private pre-recession jobs, has contributed one of every eight (12.5%) recovery jobs.
  • In the goods producing sector, the extraction industries, comprised 3.9% of the net gains since March 2010-more than six times their miniscule pre-recession share (0.6%).

These three "overachievers" contributed more than one-quarter (28.0%) of the private jobs recovery, but constituted less than one-tenth (9.1%) of private pre-recession employment.

Throughout the recovery, there have been two persistent "underachievers" (Charts 9-10):

  • Retail, which comprised 13.6% of all private jobs prior to the recession, but has contributed only 7.4% of the recovery's gains; and
  • Construction, which provided 6.5% of all private employment prior to the recession but has contributed only 0.5% of the recovery's jobs.

During the jobs recovery, government reductions have offset more than one-tenth (11.7%) of the net private gains.

From a longer-term perspective: total nonfarm employment is 1.6% above where it stood in January 2000. (Chart 11)

The work-age population (i.e., noninstitutionalized civilians,16 years or older) has increased 14.7% since then.

Since the jobs recovery began in March 2010, total nonfarm employment has grown by an average 143,100 jobs per month (private +162,000; public -19,000).

Background - Jobs Deficit and Unemployment: During the same week that employment data is collected from employers, households are surveyed regarding the labor market status of work-age residents (see technical note below).

Jobholding (i.e., the number of individuals at work) stalled in March after having risen since last June at a pace sufficient to meet the growth in the work-age population. (Chart 12)

Despite the gains since last summer, there are 4.0 million fewer Americans at work than during 2007, the year before the recession.

And because the work-age population has continued to grow, the employment rate (i.e., the proportion of work-age individuals with jobs) has been bottom-bouncing since hitting a 26-year low at the end of 2009. (Chart 13)

During 2007, the year prior to the recession, the U.S. employment rate averaged 63.0%. For the past 12 months, it has averaged 58.4%.

If the employment rate was at its 2007 average, rather than a tad above the cyclic nadir (58.2%), 10.8 million additional individuals would have been jobholders in March. Put differently: even had the number of jobs already returned to its pre-recession peak, the national jobs deficit would exceed 5 million. (Chart 14)

There has been progress with respect to the key indicators of labor market distress, most notably: the number of jobseekers and the unemployment rate, which is at the lowest reading (8.2%) in three years. (Charts 15 and 16)

But some of that "improvement" is the result of a decline in the labor force participation rate, which hovers near a 29-year-low. (Chart 17)

[Note: There have been reports that the April rise in the seasonally adjusted initial unemployment claims (i.e., benefit applications) is evidence of a weakening labor market. Ironically, the opposite may be the case. In four of the five years prior to the recession and the three afterwards, new claims rose in April; but they fell in April during the downturn (2008-2009). (Chart 18)]

The number of long-term unemployed continues to decline, but remains historically high. (Chart 19)

This is also the case with most other indicators of labor market distress, including: underemployment (involuntary part-time work) and discouragement (i.e., jobseekers who have abandoned their job search).

Both remain elevated, although there has been improvement. Underemployment continues to retreat from cyclic highs. And even though discouragement is more than twice pre-recession levels, it is below where it stood a year ago. (Charts 20 and 21)

We believe that unemployment may increase because-with households reporting increased jobholding-discouraged jobseekers will re-enter the labor market in search of employment. In other words, as the perception grows that opportunities are expanding, the number of jobseekers will rise and partially (albeit only temporarily) reverse the recent decline in unemployment.

It is acknowledged, however, that we have been predicting the return of discouraged jobseekers since last summer. To date, however, there has been little evidence of it.

Technical note: The employment and labor force data are derived from two separate representative surveys-one of employers, the other households-that are conducted concurrently each month. These data are subject to annual "benchmark" revisions, the equivalent of statistical housekeeping that refine the estimates based on more complete data. For technical reasons, the revisions of the estimates based on the household survey affect the comparability of the data series over time. To minimize possible distortions, it is best to focus on trends rather than specific point-to-point comparisons.

Patrick J. O'Keefe is director of economic research at J.H. Cohn.

Let Us Know What You Want to Know If you have a question about economic trends or data, email economy@jhcohn.com and we will try to feature a response in a future edition of Economic Notes.

Visit the "Insight on the Economy" resource page and sign up to receive Economic Notes.

***

The statements, opinions, and conclusions contained herein are based solely upon the author's own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP 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.

Published date: 5/1/2012

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