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Patrick J. O’Keefe Discusses October 2015 Jobs Report


11/6/15
 
On Friday, November 6, the Bureau of Labor Statistics (BLS) reported that the U.S. economy added 271,000 jobs in October, while the unemployment rate went down to 5%, it's lowest level since 2008.
 
Patrick J. O'Keefe, CohnReznick's Director of Economic Research, describes his initial reaction to the BLS Employment Situation report for October as akin to the temporary elation experienced immediately after a close call: relieved that bad things hadn’t happened, but disappointed that things weren’t better. 
 
Pat will be speaking with various media outlets to share his expectations and reactions, including: 
 
Bloomberg Radio’s Taking Stock 
Sirius XM Knowledge@Wharton
This Morning: America's First News with Gordon Deal 
CBS Radio News
 
O'Keefe shared his expectations earlier in the week. He expected the October data to show:
 
  • Employment increased by 205,000 jobs;
  • The unemployment rate continues to overstate labor market tightness; and
  • Average hourly earnings rose modestly.
 
 
Background - Employment  [Charts 1 – 29]
The BLS is expected to report that private sector employment increased for the 68th 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 is believed to have reached 61 months in October.  (The broader measure’s span is shorter than the private sector’s because of gyrations in Federal payrolls due to temporary staffing of the 2010 Census.)
 
October’s data should show that this year’s jobs growth continues to lag 2014’s, which recorded the largest annual increase since 1999.
 
Through the first nine months of 2015, the net gain in employment (1.8 million jobs) was 17.0% smaller than 2014’s comparable period. We expect Friday’s release to show that the year-on-year gap widened in October as employers slowed their pace of hiring in reaction to the economy’s deceleration.
 
Although hiring has been somewhat slower than last year, employers have been less inclined to see workers off.  Weekly applications for unemployment benefits, a proxy for layoffs, have been below 300,000 for 33 consecutive weeks, the longest uninterrupted span since 1973 (when covered jobs were less than one-half of the current count).
 
The economy provided a record 142.4 million jobs in September.  More than four-fifths (84.5%) were in the private sector, which surpassed its pre-recession peak by 3.8%.   
 
The private sector’s jobs recovery has been concentrated among service providers, with all but a few (e.g., Information Services and Financial Activities) at new highs.
 
Employment among goods producers, however, is well below the January 2008 peak due to reduced payrolls in manufacturing (1.4 million) and construction (1.1 million).  
 
Despite fairly steady gains since the start of 2014 (up 14 of 21 months), government employment remains 1.6% below where it stood at the start of the jobs downturn.
 
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.  The decline accelerated during the recession and, by the end of 2013, the LFPR was at 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.  Their declining participation has long-term implications for economic growth, as well as fiscal and monetary policies.
 
September's LFPR was 62.4% -- the lowest since 1977.
 
September's unemployment rate, at 5.1%, was about one half the recessionary peak and consistent with the Federal Reserve's "maximum employment" mandate.  
 
But the unemployment rate is deceptive as policy guide because much of its decline is attributable to diminished labor force participation rather than increased jobholding.
 
Since the start of the recession, the work-age population has increased by 8.0%; but the labor force increased by only 1.7% over the same period.
 
Were labor force participation equivalent to its pre-recession average (62.7% between 2003-2007), September's unemployment rate would have been 10.2%.  We look for BLS to report that the rate was unchanged in October.
 
The total number of jobholders (i.e., employed individuals) reached a record 148.8 million in September.  But the employment rate (i.e., jobholders as a proportion of the work-age population) slipped to 59.2%.  Although above its recession low (58.2%), the employment rate is significantly less than its pre-recession average (62.7%).
 
Had the employment rate been equivalent to the pre-recession average, there would have been 8.7 million more jobholders in September.  We anticipate that BLS will report that the employment rate remained at 59.2% in October.
 
Underemployment (i.e. involuntary part-time workers) has declined since the number of jobholders involuntarily working in part-time positions peaked at 9.1 million in 2010.  Over the past 12 months, the pace of decline has accelerated and underemployment dropped to 5.9 million, down more than one-third (34.8%) from 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 September, 4.0% were.
 
The most recent data indicate that long-term unemployment (spells exceeding 26 weeks) dropped 3.8% in September, after two modest increases.  Long-term unemployment is down more than two-thirds (69.1%) since peaking in 2010.
 
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