Written by Steven Hansen
The April 2013 BLS jobs report was above expectations. There was nothing in this data that was very good or very bad. But if you were expecting a bad report, this report was excellent.
- the real unadjusted non-farm private jobs gain comparing the changes between Marchs and Aprils was better than last year – but not the strongest April since the end of the recession..
- economic intuitive sectors of employment were positive. This month’s report internals are more consistent – and there were positive changes to previous month’s employment gains.
- there is no dynamic signalling improving employment dynamics (or declining dynamics.
A summary of the employment situation:
- BLS reported: 165K (non-farm) and 176K (non-farm private). Unemployment = 7.5% (down from 7.6%)
- ADP reported: 119K (non-farm private)
- Market expected: 135K to 155K (non-farm), 155K to 166K (non-farm private), 7.6 to 7.7% unemployment
- Econintersect‘s Forecast: 125K (non-farm private) based on economic potential
- The NFIB released a statement (below) saying that small business employment growth was improved in April 2013.
The BLS reports seasonally adjusted data. This data is highly manipulated, and Econintersect believes the unadjusted data gives a clearer picture of the jobs situation.
Non-seasonally adjusted non-farm payrolls rose 937,000 – better than last year
Historical Unadjusted Private Non-Farm Jobs Growth Between March and April (Table B-1, data in thousands) – unadjusted (blue line) vs seasonally adjusted (red line)
/images/bls non-adjusted change.PNG
As always, the recent past data (previous two months) was revised upward maybe making this data seem better than at first glance.
Change in Seasonally Adjusted Non-Farm Payrolls Between Originally Reported (blue bars) and Current Estimates (red bars)
Most of the analysis below uses unadjusted data, and presents an alternative view to the headline data.
The BLS reported U-3 (headline) unemployment was fell 0.1% to 7.5% with the U-6 “all in” unemployment rate (including those working part time who want a full time job) rose 0.1% to 13.9%.
BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)
Econintersect has an interpretation of employment supply slack using the BLS unadjusted data base, demonstrated by the graph below.
The jobs picture when you view the population as a whole. and with this months data it appears there has been little improvement in the jobs situation since the end of the recession.
- Econintersect uses employment-populations ratios to monitor the jobless situation. Changes in the base data effect our view of the economy.
- In the latest BLS report employment-population ratio remains improved 0.1 to 58.6 – this ratio has been jumping back and forth between 58.5 and 58.6 for 4 months. The employment-population ratio tells you the percent of the population with a job. Each 0.1% increment represents approximately 300,000 jobs. [Note: these are seasonally adjusted numbers - and we are relying on the BLS to get this seasonal adjustment factor correct]. An unchanged ratio would be telling you that jobs growth was around 150,000 – as this is approximately the new entries to the labor market caused by population growth.
The 3 year growth trend is up, and the short term trends are mixed depending on the periods selected – however, it seems the growth trend in the last 12 months is relatively flat even though the year-over-year growth this month is the lowest since May 2011.
Unadjusted Non-Farm Payrolls Year-over-Year Growth
Another way to view employment is to watch the total hours worked which has been been growing at a slower and slower rate since the middle of 2010.
Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked
The bullets below use seasonally adjusted data:
- Average hours worked (table B-2) fell 0.2 to 34.4. A falling number does not indicate an expanding economy . This number has been in a narrow channel several months.
- Government employment contracted 11,000 with the Federal Government down 8,000, state governments down 1,000 and local governments down 2,000.
- The big contributor to employment growth this month was leisure and hospitality (43K), temp services (30.8K), and retail sales (29.3k).
- The big headwind this month was the government
- Manufacturing was unchanged.
- The unemployment rate for people between 20 and 24 (Table A-10) declined from 13.3% to 13.1%. This number is produced by survey and is very volatile – and this month’s gain only reversed last month’s degradation.
- Average hourly earnings (Table B-3) rose five cents to $23.87. Wages growth at this point appears to be improving.
Private Employment: Average Hourly Earnings
Economic markers used to benchmark economic growth were ok, and well away from recessionary levels.
The truck employment rose (11.4k). Note: Growth in this sector shows an expanding economy.
Truck Transport Employment – Year-over-Year Change
Temporary help jumped (30.8K). Note that many believe (I am not convinced yet), that Obamacare is creating a shift from permanent to temporary jobs. If this is the case, this metric would be inoperative.
Temporary Help Employment – Year-over-Year Change
Econintersect believes the transport sector is a forward indicator. Others look at temporary help as a forward indicator.
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg released the following statement in advance of this jobs report:
“April was another positive, albeit lackluster month for job creation—but small-business owners are expressing a bit more enthusiasm in hiring plans in the months to come. According to NFIB’s latest data, small employers reported increasing employment an average of 0.14 workers per firm in April. This is a bit lower than March’s reading, but still the fifth positive sequential monthly gain.NFIB Jobs Graphic
“Thirteen percent of the owners (up 4 points) reported adding an average of 3.2 workers per firm over the past few months. Offsetting that, 13 percent reduced employment (up 2 points) an average of 3.0 workers (seasonally adjusted), producing a seasonally adjusted gain of 0.14 workers per firm overall. The remaining 74 percent of owners made no net change in employment. Almost half (49 percent) of owners surveyed hired or tried to hire in the last three months, and 38 percent (78 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.
“Eighteen (18) percent of all owners reported job openings they could not fill in the current period, which is unchanged from the previous month. This measure is highly correlated (inversely) with the unemployment rate, and its failure to improve suggests that the unemployment rate will not improve unless, of course, more unemployed left the labor force.
“But the big news is that job creation plans rose 6 points, to a net 6 percent of small employers now planning to increase total employment in the next three months. This is a nice improvement over the 4 point decline in hiring plans we saw in March. Not seasonally adjusted, 18 percent of owners plan to increase employment at their firm (up 3 points), and 4 percent plan reductions (down 1 point). Perhaps the ‘frost’ in March didn’t do as much damage to the ‘green shoots’ as many had feared. But we’ll see. Owners remain pessimistic and wary about the future of the economy and see little reason to hire relative to what would be expected in the fifth year of an expansion.
“The NFIB labor market indicators remained more or less on track, with an improvement only in plans to create jobs. But that gain simply walked back the 4 point decline in March, so it would be premature to proclaim much progress for small-business hiring. We shouldn’t expect much from the Labor Department jobs report on Friday, either—probably a little change in employment and little change in the unemployment rate, either up or down, is all we will see.”
Caveat on the use of BLS Jobs Data
The monthly headline data ends up being significantly revised for months after the initial release – and is subject also to annual revisions. The question remains how seriously can you take the data when first released.
The above graphic (updated through October 2011) is the month-over-month change in employment based on the original headline non-farm employment level and the current stated employment levels at month end. You will note some pretty drastic backward revision for a major economic release the market reacts to in real time.
Econintersect Contributor Jeff Miller has the following description of BLS methodology:
- An initial report of a survey of establishments. Even if the survey sample was perfect (and we all know that it is not) and the response rate was 100% (which it is not) the sampling error alone for a 90% confidence interval is +/- 100K jobs.
- The report is revised to reflect additional responses over the next two months.
- There is an adjustment to account for job creation — much maligned and misunderstood by nearly everyone.
- The final data are benchmarked against the state employment data every year. This usually shows that the overall process was very good, but it led to major downward adjustments at the time of the recession. More recently, the BLS estimates have been too low.
Econintersect has repeatedly pointed out questions about how the seasonal adjustment algorithms and data gathering methodology used by the BLS introduce uncertainty into interpretation of month to month changes in employment.
Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology. However, ADP is using a new methodology beginning with the October 2012 data – and only time will tell if their new approach was as good as their old one.
ADP (blue line) versus BLS (red line) – Monthly Jobs Growth Comparison
Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers. Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points. We are now 16 months past the post recession turning point in employment.
However, there is some discussion that neither the ADP or BLS numbers are correct – as both are derived by a sampling methodology. The answer could be that there is no correct answer in real time – and that it is best to look at the trends. As has been noted, all eventually end up correlating.
The BLS uses seasonal adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. The following graph which shows unadjusted job growth – seasonal adjustments spread employment growth over the entire year. Employment does not really grow in the second half of the year and always falls significantly in Januarys.
Non-Seasonally Adjusted Employment – Private Sector
There is the proverbial question on what is minimal jobs growth each month required to allow for new entrants to the market. Depending on mindset, this answer varies. According to Investopdia, the number is between 100,000 and 150,000. The Wall Street Journal is citing 125K. Mark Zandi said 150K. Econintersect is going with Mark Zandi’s number:
- If Econintersect used employment / population ratios to determine the number, the exact number seems to be between 140,000 and 160,000. The graph below uses the historical employment-population ratios to show jobs growth per month if the population was 300 million.
Historical Monthly Jobs Growth Comparison if Population was 300 Million
- If Econintersect uses employment – population ratios, the correct number would be the number where this ratio improved. Using the graph below, the ratio began to improve starting a little after mid-year. This corresponds to the period where the 12 month rolling average of job gains hit 150,000.
Employment to Population Ratio
Note: The ratio could be fine tuned by adjusting to the ratio of employment to working age population rather than the total population. However, this would not change the big picture that an increase of somewhere around 150,000 (+/-) is needed for the growing population numbers. We have estimated 140k – 160k. The number might possibly be within the range 125k – 175k. Econintersect cannot find reason to support the estimates below 125k.
The question of how changing demographics impact the employment numbers is at the margins of analysis. Econintersect will publish more on this fine tuning going forward, both in-house research and the work of others.