Written by Steven Hansen,
After the data releases this week and last week, there should be no doubt that for the rest of the year there will be relatively poor employment growth.
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I know that many investors believe that the monthly jobs reports confirm the current state of the economy – but employment is a lagging indicator and August’s employment confirms where the economy was at the beginning of the year. Forecasting employment is not that big of a guess as it lags the Main Street economy around six months.
This week we saw the release of Job Openings and Labor Turnover Survey (JOLTS) jobs openings which continued its decline. Unlike other employment-based forecasting tools, JOLTS seems to be a coincident indicator of the current employment trends.
The Conference Board and Econintersect publish employment indices forecasting employment growth six months ahead. The Conference Board builds its index using eight labor-market indicators:
- Percentage of Respondents Who Say They Find “Jobs Hard to Get” (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)
- The ratio of Involuntarily Part-time to All Part-time Workers (BLS)
- Job Openings (BLS)**
- Industrial Production (Federal Reserve Board)*
- Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)**
On the other hand, Econintersect builds its employment index using a smoothed Chicago Fed National Activity Index (CFNAI) data set.
In any event, the results are similar. The following graph compares BLS non-farm payrolls, the Econintersect Employment Index, and The Conference Board ETI.
The graph above offsets the Conference Board ETI by 5 months. Note that both the Conference Board and Econintersect are currently projecting a slowing growth rate
From Gad Levanon, Head of The Conference Board Labor Market Institute:
In August, for only the second time since the financial crisis, the year-over-year growth in the Employment Trends Index turned negative. And indeed, job growth has clearly slowed in 2019. However, there is no reason to worry for now, since the stable behavior of the ETI is consistent with a slowdown in employment growth and is still far from indicating a decline in the number of jobs. Beyond economic growth, it is difficult to maintain strong employment growth in such a tight labor market. For the remainder of 2019, employment will continue growing at a more moderate but still healthy pace.”
The bottom line is that we should expect a slowing rate of employment growth in the U.S. – but there are yet no signs of a contraction in employment.
Economic Forecast
The Econintersect Economic Index has a long term decline which began in July 2018 – this month (September 2019) our forecast again marginally improved for the second month but continues to predict very little growth.
The fundamentals which lead jobs growth are now showing a significant slowing growth trend in the employment growth dynamics. We are currently predicting the jobs growth to be below the growth needed to maintain participation rates and the employment-population ratios at the current levels.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
Overall this week:
inflation remains subdued
transport continues to warn of soft growth
employment forecast growth rate is trending down
inventories remain elevated
| Release | Potential Economic Impact | Comment | ||||||||||||||||||||
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| July Consumer Credit | little | The headlines say consumer credit rate of annual growth improved relative to last month. Our analysis shows annual growth decelerated. A quick look at what is going on is summarized in the graph below which shows consumer credit rate of growth little changed over the last 12 months (blue line in the graph below) over the last year. This month’s headlines said:
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August Conference Board Employment Index | projecting slowing employment growth rate | The Conference Board’s Employment Trends Index – which forecasts employment for the next 6 months declined with the author’s saying “In August, for only the second time since the financial crisis, the year-over-year growth in the Employment Trends Index turned negative“. Econintersect evaluates the year-over-year change of this index (which is different than the headline view) – as we do with our own employment index. The year-over-year index growth rate decelerated by 1.6 % month-over-month and contracted by 0.5 % % year-over-year. The Econintersect employment index declined. Remember, both of these indices are predicting growth 6 months from now.
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| 2Q2019 Final JOLTS | no change from modest growth | The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings declined further in contraction. The unadjusted data this month remained well below average for the rate of growth seen in the last year – and is near the lowest values seen since the Great Recession. With this low average rate of growth, JOLTS is predicting lower employment growth than we have seen over the past year. Jolts predicted the slowing of employment growth.
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| August Producer Price Index | n/a | The Producer Price Index (PPI) year-over-year inflation grew from 1.7 % to 1.8 %, Inflation pressures seem little changed. Here is what the BLS said in part:
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| August Wholesale Trade | wholesale is not included in GDP | The headlines say wholesale sales improved month-over-month with inventory levels very elevated. Overall, the rolling averages tell the real story – and they declined this month. This sector’s growth continues to trend down. The rolling averages are in contraction. Inventory levels this month remain at recessionary levels. Please note that I believe there is something very wrong with the data gathering as this series is significantly worse (with the exception of construction spending) than any other data set I review.
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| August Consumer Price Index | n/a | According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.7 % year-over-year (lower than the reported 1.8 % last month). The year-over-year core inflation (excludes energy and food) rate grew from 2.2 % to 2.4 % and is above the target set by the Federal Reserve. Energy was the main reason for inflation decline. Medical care services cost inflation rose from 3.3 % to 4.3 % year-over-year.
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| August Retail Sales | relatively good consumer spending | Retail sales improved according to US Census headline data. The three-month rolling average improved. There was an upward adjustment of last month’s data. The real test of strength is the rolling averages which improved. This should be considered another strong report.
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| August Container Counts | shows weak USA and Global Growth | The August year-to-date import/export container count growth rate remains in contraction. Simply looking at this month versus last month – there were only marginal changes to weak numbers. The year-over-year rate of growth improved for imports and marginally worsened for exports. Still, year-to-date growth for both imports and exports remain deep in contraction. The three-month rolling averages for exports and imports are also in contraction.
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| August Import and Export Prices | n/a | Year-over-year import and export price indicies remain in contraction year-over-year.
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| July Business Inventories | inventories are elevated | Headlines say final business sales data (retail plus wholesale plus manufacturing) improved month-over-month. However, the rolling averages declined. Inventories remain at recessionary levels. Our primary monitoring tool – the 3-month rolling averages for sales – declined. As the monthly data has significant variation, the 3-month averages are the way to view this series. Overall business sales are better than the low point in 2015 – but is well below average for the values seen in the last 2 years.
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| Surveys | manufacturing growth soft | NFIB Small Business Optimism – The NFIB Small Business Optimism Index fell 1.6 points to 103.1, remaining within the top 15 percent of readings. Overall, August was a good month for small business. However, optimism slipped because fewer owners said they expect better business conditions and real sales volumes in the coming months.
Michigan Consumer Optimism – The preliminary University of Michigan Consumer Sentiment for September came in at 92.0 – up from August’s 89.8, and down from July final of 98.4.
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| Rail Movements | Definitely not positive news | Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.
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Links To All Of Our Analysis This Past Week
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