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Patrick J. O’Keefe Discusses August 2015 Jobs Report


9/3/15

On Friday, September 4, the Bureau of Labor Statistics (BLS) released data on labor market conditions in the United States through August 2015.

Patrick J. O'Keefe, Director of Economic Research spoke to Compass Media Network and said this about the rest of the year: "The U.S. economy will continue to expand, probably akin to the average we saw in the first six months of the year (somewhere around 2% to 2.5% in inflation adjusted growth). If that's the case, what we'll continue to see is about 220,000 net new jobs month after month. It'd be a solid year, certainly not one to set records, but a good year for the economy overall."

In The Wall Street Journal, Pat said, “August is notoriously the fickle month in terms of the initial estimate. There’s a lot of speculation on why this is—whether the HR department goes on leave or, on the household side, whether people are on vacation when you call.”

Read his full expecations, released August 31, below.

We expect the BLS to report that in August:

  • Total employment increased by 220,000 jobs;
  • Average hourly earnings rose modestly; and
  • Headline labor force measures (participation, jobholding, and unemployment) were little changed.

View accompanying chartbook.

Background - Employment [Charts 1 - 29]

The BLS is expected to report that the private sector jobs count rose for the 66th consecutive month, extending the longest uninterrupted string of monthly gains on records from 1939. (Unless otherwise noted, all data are seasonally adjusted).

The uninterrupted growth of total nonfarm employment most likely reached 59 months in August. (The broader measure’s sustained improvement is shorter than the private sector’s because of gyrations in the Federal jobs count due to temporary Census staffing in 2010).

August’s data are expected to confirm that 2015’s jobs growth continues to lag 2014’s, which recorded the largest annual increase since 1999. 

Through the first seven months of 2015, the net gain in employment was 12.0% less than last year’s comparable period.  We expect Friday’s data to show that the gap narrowed in August, when employers’ near-term outlook was prudently optimistic.

Although hiring has been somewhat slower than last year, employers appear less inclined to see employees off.  Applications for unemployment benefits, a proxy for layoffs, have been below 300,000 per week for 25 consecutive weeks, the longest uninterrupted string in 15 years.

Total employment was a record 142.1 million in July. Of those jobs, 120.1 million were provided by private employers and another 21.9 million by government agencies.

As has been the case since the jobs recovery began in March 2010, growth has been unevenly distributed. For example: private employment is at an all-time high, but government employment is about one-half million below where it stood at the start of the recession.

Within the private sector, growth has been concentrated among service providers, where employment is 6.5 million greater than the pre-recession peak. Much of that was contributed by three components: professional/business services, healthcare, and leisure/hospitality.

Goods producers, on the other hand, had 2.4 million fewer jobs than in January 2008. Manufacturing employment is down 1.4 million and construction by 1.1 million.  The exception is the relatively small extraction sector (drilling, logging, and mining) where, despite recent energy-related reductions, employment exceeds the pre-recession peak.

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., those who have 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 then drifted downward on shifting demographic trends to reach 66.0% at 2007’s end. After its decline accelerated during the recession, it fell to a 36-year low (62.8%) late in 2013 and has averaged that rate over the ensuing 21 months.

Increasing retirement by Boomers (those born between 1946 and 1964) has contributed to the LFPR’s decline. While their gradual withdrawal was anticipated, a coincident decline among youth and prime-work-age adults was not. And their declining participation has significant implications for economic growth, as well as fiscal and monetary policies.

In June, the LFPR dropped to 62.6%, the lowest rate in almost 38 years (since October 1977). It remained there in July, when the count of jobholders rose marginally (+0.1%) and the number of jobseekers slipped (-0.4%).

A minor decline in the number of jobseekers left the unemployment rate at June’s 5.3%, the lowest since April 2008. 

Federal Reserve policymakers have noted that the rate is approaching their policy objective. But the decline in the count (and rate) of unemployment is attributable to shrinking labor force participation, not expanding employment. 

If July’s participation rate had been equivalent to pre-recession 2007’s 66.1%, the unemployment rate would have been 10.2%.

The total number of jobholders rose to a record 148.8 million in July, but the employment rate (i.e., jobholders as a proportion of the work-age population) was unchanged at 59.3%, where it has been for most of 2015. 

Had July’s employment rate been at pre-recession 2007’s average (63.0%), 9.2 million more individuals would have been jobholders. We expect August’s data to show a marginal increase in the number of jobholders but no change in the employment rate.

Underemployment (i.e. involuntary part-time workers) has declined gradually since the number of jobholders involuntarily working in part-time positions peaked at 9.1 million in March 2010. Over the past year, the decline accelerated and underemployment fell to 6.2 million, almost one-third (31.8%) less than at its peak.

Although the reduction in underemployment is noteworthy, the improvement is far from complete. In the five years (2003-2007) prior to the recession, 3.1% of all jobholders were underemployed; in July, 4.2% were.

The most recent data indicate that long-term unemployment (spells exceeding 26 weeks) rose 2.8% in July, the first increase since January. Despite July’s up-tick, long term unemployment has dropped by almost one-half (49.3%) since peaking in 2010.

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