12/02/2016

Unemployment Drops to 4.6%

The U.S. unemployment rate dropped in November to 4.6%, the lowest level since August 2007. 

Unemp1216

This is certainly good news, but perhaps not as positive as it first appears.  Part of the reason why the unemployment rate dropped last month is due to 178,000 new jobs added in the economy - not a trivial number.  In fact, as Justin Wolfers notes, this is 178 times the number of Carrier jobs that were recently "rescued." 

But a second reason the unemployment rate dropped is due to a decline in labor force participation.  In November, the U.S. labor force dropped by 226,000 workers, bringing the labor force participation rate (LFPR) down to 62.7 percent.  This is the third straight drop in the LFPR after showing signs of improvement this year with a 63% in March.

Lfpr1216

 

 

11/18/2016

Gas Prices Push Up CPI Slightly

Rising gas prices pushed up the Consumer Price Index (CPI) in October.  However, year-over year, gas prices were essentially constant.  In addition, overall inflation over the past year was still just 1.6%.

  Inflation1016
The table below shows changes in selected goods and services over the past year.  Notice that egg prices continue to drop drastically, but they make up a very small portion (0.1 %) of a typical consumer's budget.  Shelter (housing) prices rose 3.5% in the past year and these account for about a third (33.4%) of a typical consumers spending.   This continues the trend that began in 2010, following the decline in housing prices in the wake of the Great Recession.

CPI Table 1016

 

 

11/04/2016

Last Jobs Report Before the Election

The jobs report was released this morning and it is not bad news for Hillary Clinton.  The unemployment rate ticked down to 4.9% in October.  Historically, low unemployment rates have helped political parties retain power.

Unemp1016

This report could be stronger but it adds to the record string of consecutive months of positive job gains, bringing this record streak to 73 months now.  In October, nonfarm employment grew by 161,000 jobs. While many are touting this record string of job gains, we should point out that these have not been the strongest job gains we've seen historically.  For example, in the eight years from 1993 to 2000, the U.S. economy added an average of 242,000 jobs per month, versus the average over the past six years of 200,000.  That is a big difference over the course of several years.

Employ1016

 

10/28/2016

Goods Exports Push Real GDP Higher in Third Quarter

Real GDP growth is finally ticking up toward the long run average again.  The BEA released it's first (Advance) GDP estimate for the third quarter.  The estimate of real GDP growth came in at 2.9%, which is the highest level in two full years but still below a long run (50-year) average of 3 percent. 


GDPTable2016.IIIA

Much of this increase was driven by exports and especially exports of goods.  While total exports make up just 12% of total GDP, exports increased by $66.4 billion in the third quarter.  This increase contributed more than one third of the total real GDP growth in the third quarter.  The contribution of the four major pieces of GDP to third quarter growth is broken down in the table below.

GDPTable2016.IIIA
Total net exports contributed 0.83 % but exports of goods alone contributed 1.08 percent.

 

 

 

10/11/2016

September Unemployment Rate at 5 Percent

Last Friday, the BLS released their latest jobs report which includes estimates of the unemployment rate and labor force participation rate (LFPR) for September.  The unemployment rate ticked up slightly to 5.0 percent which is essentially where it has been for the past year.  Nonfarm payroll employment, the most closely watched aggregate jobs figure, rose by 156,000 in September. 

Unemp916
The potential good news from the past few reports is that the LFPR may have finally bottomed out.  In September, the LFPR ticked up to 62.9%, which is up from just 62.4% one year ago.

Lfpr0916

 

 

 

09/02/2016

Jobs Report Shows Little Change

The August jobs report from the Bureau of Labor Statistics is very similar to the past few reports: lowish unemployment (4.9%), positive jobs growth (+151K) and disappointing labor force participation (62.8%).  I put this in the category of good (but not great) job reports.

The monthly unemployment rate since 2006 is plotted in the figure below.  This is the most popular statistic in the report and certainly the most positive macroeconomic indicator right now.  You can see why - it is low and this is not bad news. 

Unemp0816

But nonfarrm employment increased by just 151,000 jobs in August and the labor force participation rate remains stubbornly low at just 62.8 percent.  So overall, this jobs report is better than our recent GDP reports but just not great.

 

 

 

07/29/2016

Is 2% the New Benchmark? I Hope Not.

GDP growth continues to disappoint. Today's advance estimate from the BEA pegs real GDP growth at just 1.22% in the second quarter.  Further, the new report revises the first quarter rate down to just 0.8 percent.  Ooof.  The graph below shows quarterly growth rates in real GDP since the beginning of 2006.
 
Quaterly GDP July 2016
 
Before the Great Recession, we got used to an average of 3% real GDP growth for decade after decade.  But since that recession ended, real GDP has grown at just 2% per year. The last four quarters are now: 1.99%, 0.87%, 0.83%, and 1.22%.  A decade ago, we'd consider that a horrible year. 
 
So why isn't there more concern? Because unemployment rates have been consistently around 5 percent.  But don't forget about the very low labor force participation rate, which is below 63% and this past year has been lower than at any time since the 1970s.  So maybe this is the new normal: 2 percent real GDP growth, 5% unemployment, and millions of workers sitting on the sidelines.  I hope not. 

02/08/2016

Is the Unemployment Rate Really 4.9 Percent?

A first glance at last week's jobs report might lead you to believe that all is well in the U.S. economy - and perhaps that is true.  But there are recurring indications that some long-term negative trends may persist. 

Let's start with the good news.  The unemployment rate dropped to 4.9 percent, the lowest level since February 2008.  Back then, the economy was entering the Great Recession and the unemployment rate rose to 7.3% by the end of that year.  The graph below shows the unemployment rate since 2005.  It really is nice to see the steady declines over the past five years. 

Unemp0216

In addition, the 151,000 now jobs added to nonfarm employment extends a streak of more than five years now (since October 2010) of gains in nonfarm employment.  So the total number of jobs is growing and the unemployment rate is dropping.  What can possibly be bad about the labor market?

Digging a little deeper, we see continued evidence of a disturbing long-term trend that many economists are watching closely.  In particular, the labor force participation rate (LFPR) is still very low as more than 94 million remain outside the labor force.  The graph below shows the labor force participation rate going back twenty years to January 1996.

Lfpr0216

I've covered this before (see here and here), but a quick review is in order.  When the LFPR falls, it means that some work-eligible adults are no longer working or actively seeking work.  But it also means that GDP is being produced by a smaller fraction of the population.  More and more people are "sitting on the sidelines."   

Where are all these potential workers?  Economists are still teasing out the answer, but one big reason is demographic and the other big reason is a weak macroeconomy.  The demographic piece is due to the aging labor force: baby-boomers are now retiring and this will continue for the next 15 years.  But, as you can see in the graphic above, the weak economy drove many workers out of the labor force and many have not re-entered.  For many, job prospects are just not as good as they were prior to the Great Recession. 

This biases the unemployment rate downward.  Imagine the LFPR rose again to pre-Great Recession levels. In December 2007, at the onset of the Great Recession, the LFPR was 66 percent.  If the LFPR climbed to 66% again tomorrow, more than 8 million workers would enter the labor force.  If none of these workers found jobs, this would drive the unemployment rate up to 9.65 percent.  More realistically, if half the workers found jobs, the unemployment rate would climb to 7.34 percent.  That seems more in line with the economy I live in. 

The bottom line is that the economy is not doing as well as the unemployment data indicates.  Much of the reason why we only see 4.9% unemployment is because the labor force has shrunk.  Let's hope this is not a permanent change. of late. 

01/29/2016

GDP 2015: Not so Great

This morning, the BEA released the Advance Estimate of GDP for 2015, and boy is it disappointing.  Keep in mind that this estimate is early and will be revised over the next few months.  But still, 0.7% growth for the fourth quarter is positively pedestrian.  In addition, with all four quarters now in, the overall growth rate of real GDP for 2015 is estimated at just 2.4%.  Yuck.  These are the kinds of numbers that give fodder to those who think we are headed toward a recession.

The graph below shows quarterly growth rates since 2005.  As you can see, only the second quarter was above the long run average of 3 percent. 

GPD2015.IV

Finally, the table below shows the contribution to the overall 2015 growth rate from each of the four types of spending: consumption, investment, government, and net exports. 

GDPTable2015.IV

I certainly hope that these figures are revised upward over the next few months.  In the immediate future, I'll be very curious to see the jobs report from the BLS next week. 

 

12/04/2015

Unemployment Steady at 5%

The BLS released the November jobs report earlier today.  The key takeaways are that the unemployment rate stayed unchanged at 5 % and that 211,000 new jobs were created.  In addition, the labor force participation rate ticked up slightly to 62.5 percent.  All of this is good news.

Screen Shot 2015-12-04 at 12.28.29 PM

Even though nothing spectacular happened to the unemployment rate in November, the picture of the last year tells a different story. In the last twelve months, the unemployment rate decreased by 0.8 percent.  In the last two years, the unemployment rate fell two percentage points!

In November, 211,000 new jobs were created. This job growth was close to the average of 237,000 in the past twelve months. Gains occurred in construction, professional services, and health care.  Losses occurred in the mining and the information sectors.

It may seem odd that there are new jobs created but the unemployment rate stayed constant. This is because the unemployment rate is percentage based on the labor force, which grew by about 300,000 workers in November.  

 

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