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Patrick J. O'Keefe Shares Insight on November 2015 Jobs Report


12/4/15

On Friday, December 4, the Bureau of Labor Statistics (BLS) released data on labor market conditions in the United States during November 2015. The U.S. economy added 211,000 jobs in November, and the unemployment rate remained at 5%.
 
Patrick J. O'Keefe, CohnReznick's Director of Economic Research, will be speaking with various media outlets to share his insight on the report
 
In advance of the report, Pat spoke with Gordon Deal on This Morning: America's First News. He commented, “What we saw was a very good number in October, we're going to see a little bit of slowdown from that...I think it will be a generally positive report."

In USA Today, Pat commented on the positive developments in the construction industry, noting, "They're back at work at jobs that have a higher than average hourly wage." Read the article.

In the Los Angeles Times, Pat commented on the report, saying, "Santa came early for the FOMC." Read the article

Pat also spoke with Associated Press.

Pat's Expectations Prior to the Release of the Report

We expect the BLS to report that in November:

  • Employment rose by 220,000 jobs;
  • Unemployment increased on an uptick in labor force participation; and
  • Average hourly earnings improved incrementally.
     

The accompanying chartbook displays the most recent labor market indicators.

Background - Employment  [Charts 1 - 29]

The BLS is expected to report that total nonfarm employment grew by 220,000 jobs in November. If so, that will extend to 63 months -- and 69 months for private jobs -- the longest strings of uninterrupted monthly gains on records from 1939.

Year-to-date through October, 2015's jobs growth has been the second fastest since 1999. During the year's first ten months, the net gain in employment totaled 2.1 million jobs, about 300,000 (12.8%) fewer than in 2014's comparable period.

We estimate that the pace of hiring increased in November, but since that acceleration appears less robust than 2014's, we look for the gap in year-to-date gains to widen.

Hiring this year has been somewhat slower than last year, but employers have been less inclined to see employees off. Applications for unemployment benefits, a proxy for layoffs, have been below 300,000 for 38 consecutive weeks, the longest uninterrupted span since 1973 (when covered employment was less than one-half the current count).

The economy provided a record 142.7 million jobs in September. More than four-fifths (84.6%) were in the private sector, which has surpassed its pre-recession peak by 4.0%. (Unless otherwise noted, all data are seasonally adjusted.)

Private service providers have dominated the national jobs recovery, with all but a few (viz., Information Services and Financial Activities) at new highs. We expect this week's data to show solid gains in leisure/hospitality, retail, healthcare, and temporary-help.

Goods producers' payrolls are well below the pre-recession peak due to reduced payrolls in manufacturing (down 1.4 million) and construction (off 1.0 million). The data for November should show modest gains in construction jobs partially offset by marginal losses in manufacturing and extraction.

Despite fairly steady gains from the start of 2014 (up 17 of 22 months), government employment is 400,000 (1.8%) below where it stood at the start of the jobs downturn.

Average hourly earnings are estimated to have increased six cents (0.24%) in November, marginally less than in October but almost double the past year's average.

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, reached a 36-year low (62.8%). 

It has averaged that rate since.

Increasing retirement by Boomers (those born between 1946 and 1964) -- although at a slower rate than anticipated -- partially explains the LFPR’s decline.  But another shift --  diminished participation of prime work-age adults (those between 25 and 54) -- was unexpected and has significant long-term implications for economic growth, as well as fiscal and monetary policies.

October's LFPR (62.4%) was unchanged from September's, the lowest since 1977.

The unemployment rate in October, at 5.0%, was about one half the recessionary peak. We look for BLS to report that November's rate rose to 5.1%, still in close proximity to the Federal Reserve's policy target.

But the post-recession unemployment rate is diminished as a policy guide because of the shift in labor force participation. In sum: the drop in unemployment is largely due to individuals having abandoned their search for a job rather than having fulfilled it.

From the start of the recession, the work-age population has increased by 8.0%. The labor force rose 1.7% 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 10.3%.

The number of jobholders (i.e., employed individuals) reached a record 149.1 million in October. 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 far short of the pre-recession average (62.7%).

Had the employment rate been equivalent to the pre-recession average, there would have been 9.4 million more jobholders in October. We anticipate that BLS will report that the employment rate remained at 59.3% in November.

Underemployment (i.e. involuntary part-time workers) fell gradually through much of the recovery. Over the course of 2015, however, the decline gained momentum and reduced the number of underemployed by almost one million. October's count was 37.4% below the recessionary peak in the first quarter of 2010.

The most recent data indicate that long-term unemployment (spells exceeding 26 weeks) rose modestly (+1.8%) in October. Monthly gyrations are common, but the underlying trend remains downward.  Long-term unemployment is down more than two-thirds (68.5%) since peaking in 2010.

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