Two Pictures from the September Employment Situation

Consensus (Bloomberg) had been for +100,000 (range 0 to 140,000); print was -33,000.



Figure 1: Nonfarm payroll employment, thousands, seasonally adjusted, from September release (blue), August (red), July (green), all on log scale. Source: BLS via FRED.

Obviously, the hurricanes distorted the numbers, but consensus estimates should have taken the impact into account. Note that the last two months’ of data have been revised down. There is a slight deceleration in employment growth as a consequence. This is more apparent in Figure 2.



Figure 2: Nonfarm payroll employment, seasonally adjusted, month-on-month growth rates (blue), and 3 month growth rate (red), all annualized, calculated as log differences. Source: BLS via FRED, and author’s calculations.

Some deceleration is to be expected given the economy is at near full-employment. Hence, the question is how much deceleration was due to weather. IHS estimates hurricanes reduced employment by 249,000; that implies an underlying September increase of 216,000! Taken that way, the labor market remains strong.

39 thoughts on “Two Pictures from the September Employment Situation

  1. pgl

    The household survey showed that the employment to population ratio rose to 60.4%. So which survey did the White House talk about? Yep – the household survey!

    Reply
  2. Bruce Hall

    The participation rate is still lower than historically. I’m sure there are a number of conflicting perspectives on that. Perhaps Menzie could create a log chart of an unemployment rate adjusted for average participation between 1990-2000. It seems that there is still a lot of slack in the economy. https://data.bls.gov/timeseries/LNS11300000

    Reply
        1. Menzie Chinn Post author

          Bruce Hall: I think a simple ratio is best (employed to labor force e.g.). Taking a log ratio makes sense if the ratio itself is nonsensical, e.g., chain weighted consumption divided by chain weighted GDP.

          Reply
          1. Bruce Hall

            Menzie, yes a simple ratio would work. But what I propose is that a chart could show the presently calculated unemployment rate (for whatever period of time) and then another line that shows the unemployment rate adjusted for decreasing or increasing participation rate.

            So, if our base year is 2007, then the presently calculated unemployment rate would be adjusted as:
            current unemployment rate/(current participation rate/base participation rate)

            e.g.; 4.2%/(63%/66%) = 4.4%

            That may be a slight adjustment, but it should provide a more apples-to-apples comparison to the base year unemployment rate. Of course, the nature of the employment (quality versus quantity) is another issue. A lot of lower paying service jobs versus higher paying manufacturing jobs may influence perception.

    1. pgl

      I’m sure you can find a few folks that would attribute part of this decline in the labor force participation rate to “demographics”. But the key word here is SOME. I still believe that we are seeing the discouraged worker effect. Until the employment to population ratio reaches 62% – I would argue that we are not yet at full employment.

      Reply
      1. Bruce Hall

        pgl,
        What is magic about 62%? Why not 66%. Why should 4.2% be good if the participation rate has not recovered to pre-recession levels?

        Yes, there is a demographic effect, but perhaps something else is going on. I wonder what the average age for retirement is now versus one or two decades ago? The 40-year employee is a rarity these days. That’s great if retirement is affordable. https://salon.com/2014/01/10/americas_next_crisis_tens_of_millions_of_falling_into_poverty_partner/

        I suggest that the unemployment rate is only one indicator of the economic and employment picture and that the reason there are so many who are unhappy with the current state of the economy is that they have been left behind.

        Reply
        1. baffling

          Bruce, they may have been left behind. But we have a record stock market. And record corporate profits. So there is money available, it is simply not being distributed to the workers. If we were to give further tax cuts to the corporations, what makes you think the outcome would be any different, and it would flow to the workers? This is the problem one faces when trying to defend corporate tax cuts.

          Reply
          1. Bruce Hall

            Baffling, I’d suggest that the money in manufacturing, energy, finance, and high tech corporations are being distributed to the workers, but 1) there are fewer workers required per unit of output (productivity gains) and 2) more workers are in lower margin service industries (excluding doctors). The days of high school dropouts getting by and retiring comfortably are long gone. Poorly prepared is poorly rewarded.

            The stock market certainly offers investment opportunities, but not if you don’t have extra money to invest. Institutional investors have pretty much taken over the stock markets.

            Sure, you can keep tax rates high on the producers or even raise them, but then you get France. http://nebula.wsimg.com/6e5712bf40ffe85cc116a52402d5a7d7?AccessKeyId=70E2D0A589B97BD675FB&disposition=0&alloworigin=1

          2. baffling

            “I’d suggest that the money in manufacturing, energy, finance, and high tech corporations are being distributed to the workers”
            YOU can suggest this. but unless the typical worker in those fields exists in the top 10% of income distribution, the DATA suggests this is not being distributed to the workers.

            bruce, based on the action of the past decade, there really is no evidence to suggest that decreased taxes on corporations, or increased profits, pass on to the average worker. there may be reasons to have lower taxes, but the defense made by conservatives that it benefits the average worker does not appear to be valid. quit using such arguments if they are not true.

        2. pgl

          OK – you must think we will return to a labor force participation rate near 67%. I’m not so sure.

          Of course PeakTrader is now defining full employment as having the employment to population ratio for the 16-64 age group at 100%. So I guess we are both being a tad conservative!

          Reply
          1. PeakTrader

            Pgl, that’s fake news.

            And, I guess, you read only one or two sentences of the article, and couldn’t understand even that.

          2. baffling

            has anybody noticed how peak, just like the trumpster, defaults to claiming fake news when the facts get in the way?

  3. 2slugbaits

    The uptick in the average hourly wage also appears to be due to the hurricanes. Job losses from the hurricanes mainly affected lower wage occupations, with the restaurant and hospitality occupations suffering the brunt of the job losses.

    Reply
  4. Peter K.

    “Some deceleration is to be expected given the economy is at near full-employment. ”

    Why is that? The Fed has been tightening since 2013 so I’d expect at some point its tightening would start killing jobs.

    At near full-employment? I don’t see why the participation rate can’t reach its historical trend especially given that inflation has been too low for a decade and workers have little bargaining power.

    Reply
  5. Paine

    Near full employment ?

    Who knows

    Let’s find out for once

    We chickened out in 1999
    And haven’t been down below here since

    Of course we won’t now either

    Push down with a big binge of uncle deficitizing
    Push down till wages gallop
    Then ever so slowly let wage gains run out of steam

    Reply
  6. PeakTrader

    December 2016 article:

    “…the U.S. saw an explosion in benefits during the Great Recession that has receded only mildly during the recovery…”I have a problem with people saying we’re at full employment,” said Dan North, chief economist at Euler Hermes North America, a trade credit insurance company. “We have a record 95 million people sitting on the sidelines. To me, that’s hardly full employment.

    “It’s a combination. There’s no question a lot of them are retirees,” Boockvar said. “No one wants to say, ‘I want to get fired and sit on my butt.’ But when people do lose their jobs, they’re not being incentivized enough to go back to work compared to the benefits they get by not being at work.

    …with factors divided between an aging and rapidly retiring workforce, a skills gap that leaves job openings unfilled, and the nettlesome problem of too many people who find it’s just easier to collect welfare and other transfer payments rather than go back to work.”

    Reply
    1. pgl

      Dan North is PeakTrader’s economic guru now? I bet no one has ever heard of this guy. But to say we have 95 million unemployed people? Seriously? OK, my 87 mom is retired so I guess we can count her as unemployed.

      Reply
        1. PeakTrader

          That leaves 43 million – some are one income households, where spouse doesn’t work, and some can’t work.

          I wonder how many Americans who can work watch TV or play video games all day eating potato chips.

          Reply
          1. PeakTrader

            Anyway, I don’t believe we can get 95 million more Americans in the workforce. It may just represent able bodied Americans 16 and older.

        2. pgl

          Good grief! So full employment is now defined as having every person in the nation employed? Child labor now? Cutting grannies Social Security off so she has to work. Peak Trader has jumped the shark.

          Reply
          1. PeakTrader

            The lower labor force participation rates cannot be explained by child labor (e.g. 10 years old a hundred years ago):

            https://google.com/amp/s/theatlantic.com/amp/photo/397478/

            Or retirements:

            https://bls.gov/emp/ep_table_303.htm

            When I was under 16, I delivered newspapers before school, cleaned a pizza restaurant after school, and mowed lawns on weekends, along with doing chores at home. Also, life expectancy and quality of life are much higher today compared to when Social Security was enacted (yet, people can collect Social Security at 62 today!).

  7. 2slugbaits

    Bruce Hall I’m not understanding the intuition that you’re trying to capture with your proposed metric. The primary macroeconomic rationale for tracking unemployment is to generate one axis on the Phillips curve. In other words, we use the unemployment rate as an imperfect proxy for gauging how much slack is in the economy, beyond which additional stimulus generates an accelerating inflation rate. It’s not obvious to me how your proposed metric improves the way we estimate the Phillips curve. In fact, I suspect it would probably make it worse because it anchors the metric to a baseline, which is exactly what you don’t want if the underlying fundamentals that drive the unemployment rate (e.g., the “efficiency wage”, unionization, minimum wage, etc.) tend to evolve over time. I could be wrong, but I suspect that what you’re really after is some kind of metric that tells you how much lazier people are today than in yesteryear. Is that it?

    Also, over the years I’ve noticed that you have an almost quaint Soviet fondness for manufacturing jobs. I say “quaint Soviet fondness” because old line Marxists believed in Leontief isoquants (zero elasticity of substitution) due to an underlying belief in the labor theory of value and a denial of marginal economics. This leads to a belief that value is only generated in the goods market while service industries and government are seen as parasitic.

    It was no doubt true that fifty years ago some manufacturing jobs were well paid; however, I think that was mainly due to the fact that those jobs were also union jobs. Manufacturing in non-union shops was hardly anyone’s idea of a good, well paying job even back then. For example, union workers at John Deere made good money and had good benefits; but non-union workers doing the same jobs make much less and have few benefits. Today the top jobs tend to be in the service sector; e.g., lawyers, bankers, consultants, quants, etc.

    Reply
    1. Bruce Hall

      I’m not looking for a metric about moral judgments (lazier people). I think there may be some merit in viewing an unemployment rate in terms of what percentage of the labor force is being counted. Intuitively, I’d say that 4% of 75% is better than 4% of 65%. Obviously, the spread isn’t that great, but since the issue is one of perception, I would guess that people consciously or subconsciously recognize that if a smaller percentage of people are included in a metric that the metric is not fully representative when compared to a different time and condition.

      As to a “quaint Soviet fondness”, I’d attribute that to those who believe that people should turn over their wealth to the government for redistribution as a solution for more people not participating in the labor force.

      Reply
      1. 2slugbaits

        I think there may be some merit in viewing an unemployment rate in terms of what percentage of the labor force is being counted.

        By definition the several unemployment rates calculated by the BLS represent exactly that…the percentage of the labor force that is employed. The rub is in defining the labor force. You seem to believe the labor force includes anyone who falls within a certain age group. Since the BLS does not define the labor force that way, perhaps you would do well to ponder why they don’t.

        I don’t think you ever studied Soviet economics. Soviet/Marxist economics had a specific understanding of how value is created. The Soviets believed in the labor theory of value, much as you seem to believe. They saw the source of value as coming from the manufacturing of goods according to input recipes; i.e., rectangular isoquants. In that world labor and capital are perfect complements, so labor inputs determine how much value is added. Soviet economics doesn’t have anything to do with redistribution of wealth. In any event, unemployment in the old Soviet Union was virtually zero. Everyone worked…not always in useful or productive jobs, but everyone worked.

        Reply
        1. Bruce Hall

          2slug,

          Labor is more than manual labor. It is anything that can produce value. Does artwork stem from labor? I’d say yes. How about financial products… they don’t just happen by themselves. What about technology? Medical research? Nursing home services?

          What is your definition of adding value that doesn’t include some form of labor? Even an economist has to write down his thoughts to earn his keep.

          You try to put words in my mouth, but be careful because they might actually be coming from your brain. I will grant you that the Soviets, in practice, didn’t have anything to do with the redistribution of wealth despite the communist mantra. It was more about the confiscation and centralization of wealth for purposes of implementing programs the government considered important… much like certain members of our own Congress want.

          Reply
          1. 2slugbaits

            Bruce Hall

            Labor is more than manual labor. It is anything that can produce value.

            Thank you. I’ve been trying to coax that out of you. Why? Because it’s a clear admission that you believe in the long dead Labor Theory of Value (LTV). Since you don’t have any formal training in economics that probably doesn’t mean much to you; but to folks trained in modern (i.e., post-1890) economics it tells them a lot.

          2. Bruce Hall

            2slug,

            You may ascribe value to something that others hold to be worthless and are willing to pay dearly for it… a strangely shaped rock, an evening spent under a bridge in San Francisco chatting with friends, dipping your feet in acid… any number of things.

            But if you look around, you will notice that most people pay for things that are not necessarily labor-less in their origins. Students pay for that economics class, not because they enjoy sitting on cramped chairs in stuffy rooms, but because the professor/instructor has knowledge acquired by his own labors (study) that is worth paying for.

            Yes, value is subjective to the extent that I may think something you value has no value, but in the end most economic exchanges involve someone’s labor (effort) being paid for by someone else… or even their own labor creating something of value for themselves.

            Exceptions? Love? Well, I’d say you can love a child, but that child was a product of labor (no pun) on either the mother’s, father’s of both to ensure life and nourishment and safety. A view of the ocean? How did you get there.

            Now that doesn’t mean that a lot of labor (effort) can’t go into something that no one finds of value. That’s just waste… junk… trash… landfill. But the failure doesn’t mean that value comes from some kind of effort… even a walk to a favorite viewing place. Oh, I suppose you could go to the extreme and say that you find value in sitting in the dirt, but that would be you, I guess.

            Let me ask you a question: how do you produce value?

          3. Bruce Hall

            Menzie, let’s use your marginalist example of diamonds having a secondary value greater than water based on greater satisfaction.

            First, a raw diamond will not fit into that category. Only a diamond that has been mined, analyzed, cut, polished, and usually mounted in an ornate or ornamental way. Diamonds not considered “pretty” enough will be used for other purposes such as grit for sanding/polishing or for cutting tools. Somehow, neither the creation of ornamental jewelry or cutting/polishing tools happens miraculously.

            Water can be useful in a variety of ways, not the least of which is sustaining life. Given the choice of a glass of diamonds or a glass of water in a hot, dry desert while suffering from heat exhaustion, which would have a higher value?

            We can use the rarity argument for ascribing value, but that also has its limitations.

            I will agree that value, to some degree, is subjective. Those with fewer resources will tend to value functionality over rarity (with perhaps the major exception being organ transplants which fit both aspects).

            This is all very interesting, but misses the point that I made earlier…. 4% unemployment rate based on a higher participation rate is better than 4% unemployment rate based on a lower participation rate. The sidetracking into “value” is irrelevant.

        2. baffling

          “Everyone worked…not always in useful or productive jobs, but everyone worked.”
          interestingly, peaktrader has actually advocated for this exact approach with those on welfare and disability. they should do something to earn their keep, has been his approach. he is far more in the communist camp than he realizes!

          Reply
          1. PeakTrader

            I wouldn’t say the late ’90s was a Marxist economy, where we had to hire bag ladies and guys sleeping in parks, since the economy was beyond full employment, actual output exceeded potential output, and low income real wages were rising.

          2. Bruce Hall

            baffling, you and 2slug seem to take the position that value can suddenly just appear. The argument that a forest grows without human labor. True, but the value of the forest is in large part determined by some human effort… whether building roads to make it accessible or facilities to make it comfortable or clearing portions for lumber.

            You could also argue that production of goods doesn’t require “labor”… that robots can do the labor. Someone built the robots from the steel and electronics that someone else built. So, yes, a particular good may not have intense, direct human labor, but without human labor in the production chain, nothing gets done.

            Now there are benefits from not having labor-intensive products. Self-sustaining or nearly self-sustaining systems certainly reduce the costs of products; e.g., hydroelectric dams that produce electricity once the dam is built. But nearly all economic value comes from some form of human labor.

            Now if your argument is simply that we don’t need as much human labor once the “smart” systems of production are built, I’ll agree with that. Of course, along with that comes the wide disparity of wealth between those would build and control these smart systems and those whose input is no longer required… call that efficiency and productivity.

            So, what are we to do? Take away the wealth from those who created the better means of production or better products to give to those who have not made the effort to find a niche in the new order? I believe that is called communism… eh, 2slug?

  8. pgl

    “When I was under 16, I delivered newspapers before school, cleaned a pizza restaurant after school, and mowed lawns on weekends, along with doing chores at home.” Peak Trading continues with this silly thread. But OK, I did the same when I was a kid. I bet neither one of our efforts were recorded by the BLS as us officially being employed. And I bet Peak Trading did not pay his Social Security obligations. Hmmm.

    Reply

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