Net Job Creation Through June 2019

The IMF in its Country Report for the U.S. released on June 24 concluded: “The U.S. economy is in the longest expansion in recorded history. Unemployment is at levels not seen since the late 1960s, real wages are rising, and inflationary pressures remain subdued. Economic activity, while still growing above potential, is expected to slow to around 2.6 percent this year and 1.9 percent in 2020.”

Net job creation in June bounced back to 224,000 from 72,000 in May. April was revised down by 8,000 and May down by 3,000. Rising employment and wages are the main contributors to GDP growth because personal consumption accounts for almost 70 percent of GDP. Steel consumption is related to GDP; therefore, this is one of the indicators that help us understand the reality of the steel market.

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.

We prefer to use three-month moving averages in our analyses to reduce short-term variability. In averaging employment statistics in this way, we even out what is notoriously volatile data.

Figure 1a shows the raw monthly data since January last year and that the variability in the data has been worse in 2019 than it was last year. The average monthly job creation in the last 18 months has been 206,000.

The employment data has been seasonally adjusted. We have developed Figure 2 to examine if any seasonality is left in the data after adjustment. In the nine years since and including 2011, the average month-on-month change from May to June has been positive 37 percent. This year the change was positive 211 percent. In the last nine years, May had the worst job creation performance of the year. We think it’s significant to look at the results this way because there is so much variability in the numbers that a long-term context is necessary, and it doesn’t look as though the seasonal adjustment is very effective.

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 and shows more clearly the steady improvement that occurred during 2018 and the decline in 2019. The year-over-year growth of the total number employed has been in the 1.5 to 1.9 percent range every month since February 2018. June 2019 was the lowest in that time period at 1.5 percent. Considering the variability of the raw monthly data, we think the year-over-year view is the best way to evaluate what’s really going on.

November 2018 was the first month ever for total nonfarm payrolls to exceed 150 million and in June 2019 was 151.308 million, which was 12.943 million more than the pre-recession high of January 2008.

According to the latest BLS economic news release, in June, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.90, following a 9-cent gain in May. Over the past 12 months, average hourly earnings have increased by 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $23.43 in June. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in June. In manufacturing, the average workweek edged up 0.1 hour to 40.7 hours, while overtime was unchanged at 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.6 hours.

The official unemployment rate, U3, reported in the BLS Household survey (see explanation below) rose from 3.6 percent in April and May to 3.7 percent June. U3 has ranged from 3.6 to 4.0 percent in each of the last 15 months. This is not a very representative number. The more comprehensive U6 unemployment rate at 7.2 percent was down from 7.6 percent in December last year (Figure 4). The difference between these two measures in June was 3.5 percent, which was the lowest since September 2006. 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.

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 June and hasn’t changed much in three years. Another gauge is the number employed as a percentage of the population, which we think is more definitive. In June, the employment-to-population ratio was 60.6 percent and has been almost unchanged for nine months, although it has made progress for the last five years. The labor force participation rate has been stalled for three years. Figure 5 shows both measures on one graph.

In the 42 months since and including January 2016, there has been an increase of 7,408,000 full-time and a decrease of 571,000 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. In the June employment report, JOLTS data was reported for April. Figure 7 shows the history of unfilled jobs. In April, openings stood at 7,449,000. March and April bounced back from the huge decline in February. The all-time high was 7,626,000 in November 2018. 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, have been exceptionally low since 2014. The U.S. is enjoying the longest streak since 1973 of initial claims below 300,000 (Figure 8).

SMU Comment: The job creation reports for 2019 have been extremely erratic in terms of the number of jobs created. There have been three excellent months, including June, two dismal months and one OK month. To get any sense of what is going on, it is necessary to look at longer time frames than one month. On a three-month moving average basis, job creation has declined from 245,000 in January to 171,000 in June, therefore we are experiencing a slowdown. Considering how high job openings are and how low the unemployment rate is, it seems that the slowdown is probably a result of a lack of qualified applicants at all skill levels.

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 is 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.