Net Job Creation Through November 2018

Figure 1 shows the three-month moving average (3MMA) of the number of jobs created monthly since 2000 as the brown bars and the total number employed as the black line. These numbers are seasonally adjusted by the BLS, which has been criticized in the past for the ineffectiveness of its seasonal adjustment calculations.

To examine if any seasonality is left in the data after adjustment, we have developed Figure 2. In the eight years since and including 2011, the average November has been 3 percent lower than the average October gain. This year, November was down by 35 percent. This was a give back from October, which was over 50 percent higher than the historical average. We think it’s significant to look at the results this way because some reports in the press will get over-excited or depressed by a monthly result without putting it into context. In the case of this latest data, the result, even though down, was not of concern. Historically, September on average has had the smallest gain of the year and October has had the greatest month-over-month improvement. We can expect the December employment gain to be less than that of November. These gyrations seem to confirm the problem with seasonal adjustment.

In order to get another look at the degree of change, we have developed Figure 3. This shows the same total employment line as Figure 1, but includes the year-over-year growth on a percentage basis. From this we conclude there has been a small gradual improvement since October last year.

Total nonfarm payrolls are now 11.5 million more than they were at the pre-recession high of February 2008. Total nonfarm employment in November was 149.89 million. According to the latest BLS data, the average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.4 hours in November. In manufacturing, both the workweek and overtime were unchanged (40.8 hours and 3.5 hours, respectively). The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.7 hours. In November, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.35. Over the year, average hourly earnings have increased by 81 cents, or 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.95 in November.

The official unemployment rate, U3, reported in the BLS Household survey (see explanation below) was unchanged at 3.7 percent and down from 3.9 percent in August. This was the lowest figure since our data begins in January 2000. This is not a very representative number. The more comprehensive U6 unemployment rate declined from 9.2 percent in January last year to 7.4 percent in November (Figure 4). The difference between these two measures in November was 3.7 percent. U6 includes individuals working part time who desire full-time work and those who want to work but are so discouraged they have stopped looking. Moody’s Analytics expects the labor market to continue to grow through 2019, but a diminishing labor supply will result in gradually decreasing gains. The unemployment rate is expected to bottom out at 3.4 percent during the second half of 2019, while earnings growth accelerates to 3.5 percent. However, the economy will play a different tune in 2020; employment gains will come nearly to a halt as such factors as higher interest rates, the unwinding of fiscal stimulus and deficits bear down on the economy.

The labor force participation rate is calculated by dividing the number of people actively participating in the labor force by the total number of people eligible to participate. This measure was 62.9 percent in November, the same as in June, July and October. The 3MMA at 62.8 percent hasn’t changed much in over two years. Another gauge is the number employed as a percentage of the population, which we think is more definitive. In November, the employment-to-population ratio was 60.6 percent, the highest number since December 2008. The employment-to-population ratio has made progress for the last four years, but the labor force participation rate has been stalled for two years. Figure 5 shows both measures on one graph.

In the 35 months since and including January 2016, there has been an increase of 7,015,000 full-time and a decrease of 339,000 part-time jobs. Figure 6 shows the rolling 12-month change in both part-time and full-time employment. This data comes from the household survey and part-time is defined as less than 35 hours per week. Because the full-time/part-time data comes from the household survey and the headline job creation number comes from the establishment survey, the two cannot be compared in any given month. To overcome the volatility in the part-time numbers, we look at a rolling 12 months for the full-time and part-time employment picture shown in Figure 6.

The job openings report known as JOLTS is reported on about the 10th of the month by the Federal Reserve and is over a month in arrears. Figure 7 shows the history of unfilled job openings through September when openings stood at 7,009,000. This was down from the all-time high of 7,293,000 in August. There are now more job openings than there are people counted as unemployed.

Initial claims for unemployment insurance, reported weekly by the Department of Labor, flattened in 2017 except for the hurricane-driven spike, then resumed their decline in 2018. There was an uptick in November, but it’s too soon to say if this is a trend. New claims in October were at the lowest level since 1969. In the week ending Dec. 1, initial claims were 231,000 with a four-week moving average of 227,500. This is a continuation of the longest streak since 1973 of initial claims below 300,000 (Figure 8).

SMU Comment: This was another very good report as a harbinger of future steel business. As 2018 comes to a close, the employment situation is very good and job openings have been over seven million in the last three months, which was an all-time high. 

Explanation: On the first Friday of each month, the Bureau of Labor Statistics releases the employment data for the previous month. Data is available at www.bls.gov. The BLS reports on the results of two surveys. The Establishment survey reports the actual number employed by industry. The Household survey reports on the unemployment rate, participation rate, earnings, average workweek, the breakout into full-time and part-time workers and lots more details describing the age breakdown of the unemployed, reasons for and duration of unemployment. At Steel Market Update, we track the job creation numbers by many different categories. The BLS database is a reality check for other economic data streams such as manufacturing and construction. We include the net job creation figures for those two sectors in our “Key Indicators” report. It is easy to drill down into the BLS database to obtain employment data for many subsectors of the economy. For example, among hundreds of sub-indexes are truck transportation, auto production and primary metals production. The important point about all these data streams the direction in which they are headed. Whenever possible, we try to track three separate data sources for a given steel-related sector of the economy. We believe this gives a reasonable picture of market direction. The BLS data is one of the most important sources of fine-grained economic data that we use in our analyses. The states also collect their own employment numbers independently of the BLS. The compiled state data compares well with the federal data. Every three months, SMU examines the state data and provides a regional report, which indicates strength or weakness on a geographic basis. Reports by individual state can be produced on request.