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November 2012 Employment Index: Jobs Growth Will Decelerate

Written by Steven Hansen

Before analyzing the Conference Board’s November employment index, one more look at last Friday’s BLS jobs report:

  • Again, I caution readers not to take the November BLS Jobs report seriously – just look at the overall trends which are showing the rate of jobs growth as neither improving or declining, but flat;
  • There was one particularly unusual aspect of the jobs report – the inordinately high (aka historically high) growth of retail jobs.  This will be discussed further after the “Read More >>”

Today the Conference Board reported their November 2012 employment trends index decreased. This index is saying employment growth will decelerate further.

The growth in the retail sector was way out of line for an economy just skimming along.  The graph below is the historical retail sector jobs growth (in thousands) for the month of November with approximately 50,000 more jobs than one would expect. My takeaway is that unless there was a huge jump in retail sales, it is seasonal employment which occurred earlier than normal.  If it is seasonal employment, expect these jobs to disappear in January.

If I am correct, this would explain how the jobs growth was 50,000 higher than expectations.

The seasonal adjusting methodology of the BLS continues to puzzle. The graph below compares the November month-over-month changes since 2004. Note that since the end of the Great Recession, the unadjusted jobs growth has been steadily improving – yet in 2012, the seasonally adjusted BLS number shows a decline in November.

Comparison Unadjusted Private Non-Farm Jobs Growth Between October and November – Unadjusted (blue bars) and Seasonally Adjusted (red bars)

You can see from the blue bars on the below graph, that jobs growth is about average for year-over-year growth since 1Q2011. The red line gives you the growth trend – which shows it is neither up or down.

Change in the Rate of Growth Annualized of Private Non-Farm Jobs (red line, right axis) and Year-over-Year Growth (blue bars, left axis)

/images/z bls2.PNG

From the Conference Board:

The Conference Board Employment Trends Index™ (ETI) decreased slightly in November, the fourth decline this year. The index now stands at 107.82, down from 107.84 (a downward revision) in October. The November figure is 3.3 percent higher than a year ago.

“The Employment Trends Index remains weak and suggests that employment growth over the next several months is likely to slow again,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “Employment growth typically lags economic growth, and with the economy expected to decelerate in the current quarter and early 2013, a slowdown in employment won’t be far behind.” November’s decline in the ETI was driven by a large negative contribution from Initial Claims for Unemployment Insurance.

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

To add context to this index, the following graph compares BLS non-farm payrolls and the Econintersect Employment Index to the ETI. Econintersect uses non-labor and mostly non-monetary economic pulse points in constructing its index, while The Conference Board uses mostly elements of employment data.

Comparing BLS Non-Farm Employment YoY Improvement (blue line, left axis) with Econintersect Employment Index (red line, left axis) and The Conference Board ETI (yellow line, right axis)

/images/employment_indices.png

The graph above offsets the Conference Board ETI by 3 months. My take is that neither Econintersect or The Conference Board ETI are mimicking the actual BLS jobs data. The Conference Board tries to predict turning points (which it appears to be good at) – but is unable to predict the intensity of the upward or downward movements. Econintersect attempts to predict intensity of movement (which it appears it is much better at than the ETI) – and is predicting a continuing weak labor market (which the labor market until recently has been stronger than Econintersect‘s index would have predicted).

Current Historical Unadjusted Private Non-Farm Jobs Growth Between October and November (Table B-1, data in thousands)

/images/bls non-adjusted change.PNG

The bottom line is that the jobs situation seems set to be less good for the foreseeable future.

Caveats on the Employment Trends Index

According to the Conference Board:

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

  • Percentage of Respondents Who Say They Find “Jobs Hard to Get” (The Conference Board Consumer Confidence Survey
  • Initial Claims for Unemployment Insurance (U.S. Department of Labor)
  • Percentage of Firms With Positions Not Able to Fill Right Now (© National Federation of Independent Business Research Foundation)
  • Number of Employees Hired by the Temporary-Help Industry (U.S. Bureau of Labor Statistics)
  • Part-Time Workers for Economic Reasons (BLS)
  • Job Openings (BLS)
  • Industrial Production (Federal Reserve Board)
  • Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Unfortunately many of these indices are not accurate in real time being subject to at times significant backward revision.

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