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


7/28/14

by Patrick J. O'Keefe, Director of Economic Research

On Friday, August 1, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States through July 2014.

Forecast

  • We expect the BLS to report that total nonfarm employment rose by 240,000 jobs in July, with the monthly gain concentrated in the private sector. 
  • We look for the BLS to report that labor force participation increased in July and the number of jobholders (i.e., individuals at work) returned to its pre-recession peak, while the number of jobseekers (including those previously discouraged) rose in response to increasing employment opportunities.
  • The Bureau is also expected to report that, despite the labor market’s overall gains, the unemployment rate remained at 6.1%.
     

The accompanying chartbook displays the most recent labor market indicators.

Background – Employment [Charts 1-29]: 

The first half of 2014 saw the most robust jobs growth in any year since 1999. 

Through June of this year, the U.S. economy gained 1.4 million net new jobs, more than quadrupling the average first-half increases during the preceding 14 years. 

Private sector employers added 1.3 million jobs in this year’s first six months, more than 6.5 times the 2000-2013 average.

Nonfarm employment totaled 138.8 million jobs in June. For the second consecutive month, the jobs count modestly exceeded (0.8%) the pre-recession peak.

To be certain, the jobs recovery was slow.  It began in March 2010 and required 52 months  ̶  more than four times the post-1948 average  ̶  to recover the losses incurred during the downturn.

The recovery was also uneven. In June, employment among private service providers exceeded their pre-recession peak by 3.8 million jobs (4.0%). But among goods producers (viz., manufacturing and construction) and government agencies, June’s employment was 13.2% (2.9 million jobs) and 2.1% (480,000 jobs) less, respectively, than the prior peak.

June’s gains (288,000 net new jobs) outstripped the averages of the recovery (176.000) and the previous 12 months (208,000). And for the first time since the first quarter of 2012, the three-month average exceeded 240,000 for three consecutive months.

Year-to-date through June, total employment is 13.4% above 2013’s comparable period. More than one-half of the acceleration reflects the public sector’s shift from shedding jobs (-36,000 last year) to adding them (+54,000 this year). Private jobs growth in 2014’s first half was 5.9% (+74,000) faster than 2013’s.

In June, private employment was 895,000 (0.8%) above the pre-recession peak, yet public sector employment was 480,000 (-2.1%) below.

Within the private sector, employment among goods producers – despite their regaining 1.4 million jobs during the recovery – remains 2.9 million less than in January 2008.

Manufacturers have 1.6 million fewer jobs; construction payrolls are down 1.5 million. Both had been declining prior to the general downturn. The extraction industries (i.e., logging, mining, and drilling), which comprise 0.9% of all jobs, are at a 28-year high.

Private service providers added 8.3 million jobs during the jobs recovery and, consequently, their payrolls are 3.8 million greater than at the pre-recession peak. 

The gains among private service providers have been unevenly distributed, however. 

Three industries (Food Services, Professional/Technical Services, and Temporary Help) account for almost two-fifths (38.5%) of the service providers gains during the recovery. This is almost double the five years before the recession when they provided one-fifth (20.7%) of the service sector’s jobs. 

Most noteworthy, among the sector’s few under-performers are three that have yet to regain their pre-recession levels: Information Services (-369,000), Financial Activities (-333,000), and Retail Trade (-213,000). 

Government employment in June was 480,000 below the downturn’s start. Local government reductions account for more than three-quarters (77.5%) of that shortfall.

In sum, the jobs recovery has occurred entirely in the private sector and, within it, has been disproportionately concentrated among a sub-set of service providers. 

Background – Labor Force [Charts 30-41] The employment data discussed above are based on a survey of employers. A separate survey of households is the source of data regarding 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). 

Labor Force participation: From its historic peak early in 2000, the labor force participation rate drifted gradually downward on shifting demographic trends. 

With the onset of the 2008-2009 contraction, however, participation dropped dramatically. It fell to a 36-year low (62.9%) at the end of 2013 and, after a brief rise, slipped to 62.8% throughout the second quarter (i.e., through June).

Participation has declined among youth and those in their prime working years. It has increased among the more senior cohorts.

Compared to the historic peak (2000 Q-1), the rate for youth (16-24 years of age) was 54.7% (versus 65.8% at the peak); in this year’s second quarter, participation among those in their prime working years (20-54) was 80.9% (3.3% below the peak). 

Conversely, the participation rate among those nearing retirement (55-64) is 64.2% (up from 59.5%). And over the past year, participation among those 65-and-over averaged 18.6%, a 50-year high and more than two-fifths above the first quarter of 2000.

From when the recession started through June, the work-age civilian population increased by some 15.2 million. Over that period, the labor force rose by 3.9 million, an incremental participation rate of 25.4%.  Coincidentally, the total participation rate fell from 65.6% to 63.0%.

Jobseekers: June’s unemployment count declined by 3.3% (down 325,000 jobseekers), more than fully reversing April’s slight rise.  The number of unemployed fell to the lowest since August 2008.

For much of the recovery, the decline in the unemployment rate reflected a shrinking work force rather than increasing employment.

In June, however, the unemployment rate fell as the number of jobholders increased by more than the number of jobseekers declined. At 6.1%, the unemployment rate was equivalent to September 2008.

Jobholders: The number of jobholders rose 407,000 in June, increasing the number of individuals with jobs to within a whisker (0.3%) of the pre-recession peak (November 2007).  June’s count of jobholders was 8.2 million greater than when it bottomed at the end of 2009.

Since then, as the number of jobholders rose somewhat faster than did the work-age population, the employment rate (i.e., the proportion of work-age individuals with jobs) has moved gradually upward.  In June, the employment rate (59.0% of all potential workers) was the highest since August 2009.  As a result, the jobs deficit fell below 10 million for the first time in almost six years.

Other indicators of labor force utilization were mixed: the number of discouraged jobseekers and long-term unemployed fell; but there was a rise in the number of under-employed (i.e., individuals working part time due to economic factors).

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