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Patrick J. O'Keefe Shares Expectations for December Jobs Report


1/5/15

On Friday, January 9, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States through December 2014.

Forecast:

  • The BLS is expected to report that total nonfarm employment rose by 260,000 jobs in December adding to 2014’s already strong performance.
  • In the 11 months through November, the economy had already added more jobs than in any calendar year since 1999. It is unlikely that December’s gains will be large enough to raise 2014’s annual growth above that of calendar year 1999; however, the data will likely suggest that growth will remain robust in the first half of 2015.
  • We think the BLS will report that labor force participation rose as the number of jobholders reached a new record. With December’s unemployment count expected to be the lowest since mid-2008, we project that the unemployment rate fell to 5.7%.
     

View the accompanying chartbook.

Background - Employment [Charts 1-29]: In 2014 through November, total nonfarm employment had increased by 2.7 million jobs. Although 2014’s growth was concentrated in the private sector, its gains – unlike earlier in the jobs recovery – were bolstered by steady (but modest) growth in government employment.

The jobs recovery, which ran from March 2010 through May 2014, required 51 months  ̶  more than four times the post-1948 average  ̶  to regain the 8.7 million jobs lost between the pre-recession peak in January 2008 and the downturn’s nadir in February 2010.

In November, the jobs count exceeded the pre-recession peak by 1.7 million (1.2%). 

Year-to-date through November, 2014’s employment gains have exceeded 2013’s comparable period by 17.9%.  The annual acceleration is attributable to a faster pace of private sector growth (12.8% ahead of 2013’s comparable period) and the public sector’s shift from shedding jobs (-32,000) in 2013 to adding them (+79,000) in 2014. 

In the past 12 months, employment gains have averaged 228,000 net new jobs.

Although the economy reached record levels of employment in 2014, the recovery’s pace had been erratic through the first quarter of 2014.  Since then, however, its stride has steadied: the three-month average jobs gain has exceeded 235,000 for eight consecutive months, the longest such run in 14 years.

The employment recovery has entailed a shift in the distribution of jobs:  Through November, total nonfarm employment was 10.4 million (8.0%) above the bottom of the employment contraction, which occurred in February 2010.  From then through November, private employers added 10.9 million jobs (+10.2%) but public agencies shed 535,000 (-2.0%).

The jobs recovery also involved a shift in the distribution of private sector growth: 

  • Goods producers’ payrolls have regained 1.6 million jobs since the start of the jobs recovery.  But with gains that have been slow and fitful, the goods producers’ recovery is incomplete: manufacturing and construction jobs combined are 2.7 million below their pre-recession levels. 
  • Private service providers’ payrolls, on the other hand, had 4.8 million (5.1%) more jobs in November than at the start of the downturn.  From the recessionary bottom, they have added 9.3 million jobs (+10.4%).
     

Public sector employment in November was, as noted above, 455,000 less than in January 2008.  Cuts by localities, which pre-recession provided almost two-thirds (64.4%) of all government jobs, account for three-quarters (80.9%) of the ullage.

Background - Labor Force [Charts 30-41] The employment data discussed above are based on a survey of employers. A separate survey of households generates data on the labor market status of residents.  To be counted as a labor force participant, an individual must be a non-institutionalized civilian, 16 years or older and either a jobholder or jobseeker (i.e., having actively sought work in the prior four weeks). 

As discussed in more detail below, the national labor force expanded in October by 119,000 individuals as the number of jobholders was virtually unchanged (up 4,000) and the count of jobseekers increased  by 115,000.

Labor Force Participation: Where have all the jobseekers gone?  When will they return? (Apologies to Pete Seeger.)

After reaching a historic peak in 2000, the labor force participation rate (i.e., jobholders and jobseekers as a percent of the work-age population) drifted gradually downward on shifting demographic trends. 

The decline accelerated with the onset of the 2008-2009 contraction and the rate fell to a 36-year low (62.8%) at the end of 2013.  It has hovered near that level since.

The declining labor force participation rate (LFPR) masks the underlying weakness in the nation’s labor markets.  If October’s LFPR had been equivalent to the pre-recession average (e.g., 66.0% in 2007), the number of unemployed would have been almost double October’s count (16.8 million versus 9.0 million) and the unemployment rate 10.3% rather than the reported 5.8%.

Participation rates have declined differently by both age and gender. 

In broad summary: The LFPRs of youth (16-24 years) and those in their prime earning years (25-54) have declined, while participation among those 55 and older rose.  Within categories, female LFPRs declined less than males’ in the youth and prime-age cohorts, but from lower peaks; among the above-55 cohorts, female rates rose more than males.

In this year’s third quarter (Q-3), the LFPR of youth (16-24 years of age) was 54.9%; it had peaked at 65.9% in Y2K.  In Q-3, participation within the prime earnings cohort (25-54) was 80.9%; it peaked at 84.2% in Y2K.

At 64.2%, participation in Q-3 among those nearing retirement (55-64) exceeded that cohort’s Y2K peak rate (59.5%).  And for those 65-and-over, the Q-3 LFPR was 18.5%; that was below last year’s 50-year high, but more than two-fifths above the Y2K peak. 

In sum, there has been a sharp decline in labor force participation among youth and prime-work-age adults.  Coincidentally, a larger share of an exceptionally large cohort continues to participate at historically high levels.  On net, fewer Americans have or are seeking jobs and that has long-term implications for the economy and economic policy.

Jobseekers: The number of individuals actively seeking work rose marginally(+1.3%) in November while the unemployment rate remained at October’s 5.8%, the lowest since mid-2008.  That reading is flattered by diminished labor force participation.

Jobholders: The number individuals at work rose marginally (+-0.2%) in November; although insignificant, it was the seventh consecutive monthly rise.  Over the past 12 months, the count of jobholders has increased by 2.8 million (+2.0%).

The number of Americans with jobs in November exceeded the pre-recession peak (November 2007) by 692,000 (+0.5%).

During the jobs recovery, the number of jobholders has grown somewhat faster than the work-age population and, therefore, the employment rate (i.e., the proportion of work-age individuals with jobs) has increased gradually. 

The employment rate remained at October’s 59.2%, the best since July 2009.  But had November’s rate been equivalent to the average in the year prior to the downturn (2007, when it was 63.0%), an additional 9.4 million Americans would have been at work.

Other indicators of labor force utilization were generally positive in October: under-employment fell for the seventh straight month and long-term unemployment, having declined in 10 of the last 12 months, was 1.2 million less than a year ago.  Adjusted for seasonality, November’s count of discouraged jobseekers was the lowest in more than five years (March 2009).

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