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Patrick J. O'Keefe Discusses December 2015 Jobs Report


1/8/16

On Friday, January 8, the Bureau of Labor Statistics (BLS) announced that U.S. employers added 292,000 jobs in December; unemployment remained at 5%.
 
Patrick J. O'Keefe, CohnReznick's Director of Economic Research, appeared on CNBC Worldwide Exchange to discuss his expectations. View the video here.
 
On This Morning: America's First News with Gordon Deal, Pat stated, "Overall I think the data that we see on Friday will be generally positive, the question mark, as has been the case throughout the recovery, is whether we can entice so many of those people who left the labor force back in."
 
"2015 went out with a megabang," said Pat in the Associated Press. "It speaks to the underlying strength of the domestic economy." Read the article.
 
In the Los Angeles Times, Pat commented, “Given the external weakness that the global economy has evidenced over the course of 2015 ... that we’ve had two back-to-back years of decade-high gains I think is very encouraging." Read the article.

His expectations for the report, released earlier this week, appear below:

On Friday, January 8, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States during December 2015.

Patrick J. O'Keefe, CohnReznick's Director of Economic Research, expects the BLS to report that in December:

  • Employment increased by 205,000 jobs;
  • Unemployment gains reflect diminished labor force participation;
  • Hourly earnings posted another monthly increase.
     

The accompanying chartbook displays the most recent labor market indicators.

Background - Employment [Charts 1 - 29]

In November, the U.S. had 142.9 million jobs, a new record and 3.3% more than at its January 2008 employment peak. 

During the contraction, the economy shed 8.7 million jobs between the pre-recession peak and recessionary nadir in February 2010. In the jobs recovery since then, the economy has added 13.3 million payroll positions -- all in the private sector.

Friday's BLS data is expected to show that nonfarm employment grew by 205,000 jobs in December. If so, the string of uninterrupted monthly jobs gains will reach 63 months (70 months for private jobs), the longest on records from 1939. (Unless otherwise noted, all data are seasonally adjusted.)

Year-to-date through November, 2015's jobs growth has been the second fastest since 1999. During the year's first 11 months (unadjusted for seasonal fluctuations), the net gain in employment has totaled 2.3 million jobs. While solid, to be sure, this year's growth lags 2014's comparable period by almost one-half million (17.2%). 

Although hiring has been somewhat slower, employers are reluctant to sever employees. Applications for unemployment benefits, a proxy for layoffs, have been below 300,000 for 43 consecutive weeks, the longest uninterrupted span since 1973 (when covered employment was less than one-half the current count).

Private service providers, with about two-thirds of all jobs, have dominated the national jobs recovery and all but a few (viz., Information Services and Financial Activities) have reached record highs. We look for December's growth to be concentrated in four industries: leisure/hospitality (+45,000), healthcare (+25,000), professional/technical (+25,000), and temporary help (+20,000).

Goods producers' payrolls remain well below (-2.4 million) the pre-recession peak due to reduced payrolls in manufacturing (-1.4 million) and construction (-1.0 million). The data for December should show continued gains in construction jobs, which will be partially offset by further marginal losses in manufacturing and extraction.

Despite fairly steady growth since the start of 2014 (up 17 of 23 months), government employment remains 400,000 (1.8%) below where it stood in January 2008.

Average hourly earnings are estimated to have increased 8 cents (0.3%) in December, double November's rise.

Background - Labor Force [Charts 30 - 41]

The employment data discussed above are based on a survey of employers. The data discussed below focus on the labor market status of residents and are derived from a survey of households.

The labor force is comprised of all non-institutionalized civilians, 16 years or older, who are either jobholders or jobseekers (i.e., actively sought work in the prior four weeks).

The labor force participation rate (LFPR), the share of the work-age population that has or is seeking paid employment, peaked at 67.3% in early 2000 and subsequently drifted downward on shifting demographic trends to reach 66.0% in mid-2007.

The participation decline persisted through and beyond the recession (for economic as well as demographic reasons) and, by the end of 2013, was at a 36-year low (62.8%).

It fluctuated around 62.8 % through May of 2015, but has since drifted further downward.

Increasing retirement by Boomers (those born between 1946 and 1964) -- although at a slower rate than anticipated -- partially explains the LFPR’s decline.

But diminished participation of prime work-age adults (those between 25 and 54) accounts for much of the decline and that has significant implications for economic growth, as well as fiscal and monetary policies.

In November, the LFPR rose from the prior two months' lowest rate since 1977.

The unemployment rate was unchanged in November. At 5.0%, it was half the recessionary peak (October 2009). We look for BLS to report that December’s rate rose to 5.1% because growth in the work-age population -- even at a subdued LFPR -- led to a rise in the number of labor force participants that exceeded the increase in jobholders.

Despite that uptick, the unemployment rate will remain in close proximity to the Federal Reserve's policy target.

But the current unemployment rate overstates the labor market's recovery because the unemployment decline is largely attributable to individuals quitting their job search rather than fulfilling it.

From the start of the recession, the work-age population has increased by 8.2%. The labor force rose 2.1% over the same period.

Were labor force participation equivalent to its pre-recession average (e.g., 66.1% between 2003-2007), the unemployment rate would be 10.2%.

The number of jobholders (i.e., employed individuals) reached a record 149.4 million in November. The employment rate (i.e., jobholders as a proportion of the work-age population) rose to 59.3%, which exceeds the recession's nadir (58.2%) but falls short of the pre-recession average (e.g., 63.0% in 2007).

Had the employment rate been equivalent to the pre-recession average, there would have been 9.2 million more jobholders in November.

We anticipate that BLS will report that the employment rate remained at 59.3% in December.

Underemployment (i.e. involuntary part-time workers) fell gradually through much of the recovery. Over the past six months, however, the decline has gained momentum and reduced underemployment by more than one-half million. November's count was one-third (34.6%) less than the early-2010 recessionary peak.

The most recent data indicate that long-term unemployment (spells exceeding 26 weeks) declined moderately (-4.3%) in November. Although monthly gyrations are common, the trend has been persistently downward. Since peaking in April 2010, long-term unemployment has fallen by more than two-thirds (69.9%).

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