Tag Archives: employment

Between Jobs

Are we working hard, or hardly working?

Man shoveling at construction site. Photo: Igor Ovsyannykov. Source: Fancycrave

Both. The unemployment rate declined to its lowest level since 2001. Employers added jobs for the 80th straight month – the longest such streak on record. Wages are up 2.5% from a year ago – more than the 2% wage gains we were seeing last year, and significantly more than the 1.5% inflation rate.

But unemployment fell because people are leaving the workforce. The labor force shrank by almost half a million people in May, as baby-boomers retire and others leave the job market. Why are they leaving? That’s a good reason. The labor force participation rate for prime-age workers, aged 25 to 54 years old, has been falling for the last 20 years, and especially dropped off after the Great Recession, although it’s recently started to recover. But this last month didn’t help.

Source: St. Louis Fed

My biggest worry is the declining rate of job creation. Job growth in terms of the number of jobs seems steady, but the growth rate has declined modestly as a percentage of the total job market. Just two years ago the rate of job creation was accelerating, growing at more than 2.2% per year. Now it’s about 1.5%

Source: BLS

Maybe it’s the “retail apocalypse”: over the past four months, online sellers have added 12,500 jobs, while the rest of the retail sector has cut 92 thousand positions. Department stores have been especially hard hit. It’s worth keeping an eye on the retail sector. There are more than 16 million retail jobs in the US. Or maybe employers are just running out of people to hire. The number of job openings is still near a record level, even as the rate of hiring seems to be slowing.

While May’s employment report was disappointing, the job market isn’t in trouble yet. The unemployment rate is very low, and employers are creating more jobs than there are new workers entering the market. It’s really too soon to start worrying. But it’s not too early to start paying attention.

Douglas R. Tengdin, CFA

Making Stuff Happen

Where have all the manufacturing jobs gone?

Old shoe factory, Columbus, OH. Photo: Nytend. Source: Wikipedia

Since 1989, manufacturing employment in the US has plunged by 6 million workers – over 30%. But this doesn’t mean the US has stopped making things. Employment has fallen, but output – after a setback during the recession – has continued to grow. In fact, the output of stuff made in the US – cars, engines, advanced machinery – is currently near an all-time high.

Source: St. Louis Fed

Is this good or bad? Employing people is good, but not if it’s unsustainable. US manufacturers have become far more efficient at what they do. Global supply chains now take rare earth metals from Africa to make advanced chips in Texas to apply to circuit boards in Taiwan to assemble iPhones in China. Different areas have different specialties. And our improving productivity adds to global prosperity.

To some extent, this has always been the case. When shoe factories couldn’t operate profitably in New England, they moved to the Southeast and Midwest. When inputs became too expensive there, the facilities moved somewhere else. But new manufacturers also started up, with processes that aren’t as labor-intensive. For the most part, the folks who lost their jobs found other work. But the transition can be tough!

I’ve worked in finance most of my life. I’ve been merged, downsized, laid off, right-sized, and seen lots of other issues. I’ve moved overseas and back again. It seems that banking and finance have many of same issues as manufacturing: pressures on profits, new technologies, and a workforce that constantly has to upgrade its skill-set or risk being left behind. Better skills and higher profitability should lead to higher wages. But it doesn’t always seem to work out that way.

In many ways, today’s job market is like riding a bicycle: you have to keep moving forward or you fall off.

Photo: Octavio Lopez. Source: Morguefile

Douglas R. Tengdin, CFA

Jobs, Jobs, Jobs

How tight is the labor market?

Photo: Douglas Tengdin

After hitting 10% in October of 2009, unemployment has fallen to 5.3%. That’s pretty good. But there are still areas where the job market feels week—especially in long-term unemployment. Folks unemployed 6 months or more currently make up a quarter of the unemployed. That ratio has come down from almost 50% in 2010, but it’s still pretty high. That’s one reason why this recovery doesn’t feel very strong.

Another reason is the participation rate—the percent of the US population either working or looking for work. That number peaked in 2000 at just above 67%. It had risen pretty steadily until then. But it started falling after the dot-com bust, and continued to fall after the last recession. It’s currently down almost 5% from its peak to 62.6%, a level not seen since the late ‘70s.

Source: Alan Krueger and Princeton University

Still, 5.3% unemployment is pretty low. Conventional wisdom says that as the economy strengthens, people not in the labor force will start looking for work and push the unemployment rate higher, but there’s little evidence that this is happening. The rate at which people move from outside to inside the labor force has been pretty stable, between 7 and 8%. In fact, it recently slowed to just below 7%.

The best measure for tightness in the job market is compensation. When workers are scarce, employers have to pay up—both to attract new workers, and to hold onto the staff they have. And by this measure, things are getting better. During the ‘90s, real wages and salaries—after inflation—gradually increased. That’s part of the reason stocks got so bubbly at that time. We had a sense that things were getting better and better. But pay raises were harder to come by after the dot-come bust, and real wages and salaries actually fell in the shadow of the financial crisis. Gloom in the stock market was matched by gloom in the labor market.

Source: Alan Krueger and Princeton University

But lately, pay raises have perked up. Real salaries and wages rose 1½% last quarter, the biggest increase in over a decade. Indeed, with unemployment so low and real compensation rising so much, there’s some risk that wages will rise fast enough to squeeze profits. Among other issues, this has the market worried.

How tight is the labor market? If pay is any indication, it’s getting tighter.

Douglas R. Tengdin, CFA

Chief Investment Officer

Global Trading Places

Does increased trade cost us jobs?

Photo: J Brickman. Source: MorgueFile

Economists have long touted trade as a way to improve economic performance that doesn’t require new technology or skills. At least that’s how it’s supposed to work. Some economists think that if inexpensive outside labor displaces too much domestic production, the exporter does better but it hurts us too much.

Continue reading Global Trading Places

Growth in the Spring

Maybe this time?

Source: Western Gardeners

In the cult classic “Being There,” Peter Sellers plays Chauncey Gardiner, a simple-minded gardener who lives with a wealthy benefactor. When his patron dies, Chauncey is turned out into the streets. Through a series of random encounters, he ends up advising the US President on economic affairs, at one point saying, “There will be growth in the spring”—an allusion to a garden’s growth, but something others over-interpret to mean that their economy would soon improve.

Continue reading Growth in the Spring

Employment, Wages, and the Fed

Don’t put the cart before the horse!

Source: Edublogs

That’s what I thought when I heard that the Fed is targeting wages as an economic indicator. Over the past several years hourly earnings have been stagnant. Some say the Fed shouldn’t raise rates until household income improves. And since real wages haven’t moved, Fed policy should stay where it is. Only in the past couple years have wages begun to outpace inflation.

Continue reading Employment, Wages, and the Fed

Go Code

Looking for work?

Global Market Update - Programmers

Source: Wikipedia

One area of the job market growing exponentially is computer programming, or coding. And it isn’t just tech firms that are hiring. As firms automate processes from human resource management to marketing to product manufacturing, they need people to write and maintain the code that makes everything work. And cyber-security is every bit as important as physical security: a recent study showed 97% of all company networks have been hacked in some way.

Continue reading Go Code

Working Hard, or Hardly Working?

Why is the labor force shrinking?

That’s not exactly right: the labor force isn’t getting smaller, but as a percentage of the population, it is. The economy’s labor force participation rate had been rising steeply through the ‘60s, ‘70s, and ‘80s, rose more slowly in the ‘90s, and has been falling since 2000. Starting in ’08, it has been falling steeply. We now have the same percentage of our total population working as we had in the late ‘70s. Why?

Part of it is the retirement of the baby-boomers. Getting laid-off during the recession might be a good excuse to retire. Part of it is increasing college enrollment. Increasing your skills can be a rational response to a tough economy. Part is the economy. Participation falls during recessions.

But a big part of the fall in the participation rate is simply unexplained. It could be new technology—the robot ate my job. It could be the rise in expected marginal tax rates since the late ‘80s. Less return from working means less working. It could be a fall in demand for labor relative to capital, because the price of labor is rising and the price of capital is falling. We just don’t know.

Since the macro-data are inconclusive, economists and policy-makers should focus on micro-initiatives: lower tax rates here, cheaper labor costs there, incentives to keep working in another place. We have a natural economic laboratory in this country: it’s called “statehood.”

The fall in the labor force participation rate since 2008 means that 9 million workers and over $400 billion in economic output are being left on the table—more twice the output of the entire country of Ukraine. Encouraging people to work should be job one.

Douglas R. Tengdin, CFA

Chief Investment Officer

Odd Jobs

Was something wrong with the latest jobs report?

On Friday the Bureau of Labor Statistics issued its monthly employment survey. Actually, they released data from two separate surveys: one of business establishments, and one of households. The establishment survey is less volatile. Each month the Bureau contacts about 145 thousand establishments representing 550 thousand worksites. About 50 million workers are in this sample.

By contrast, the household survey canvases only 60 thousand households. The smaller sample size means the results are more variable, but it’s also more sensitive to changes in the structure of the job market—like an increase in start-ups or more self-employment. As with many reports, the trend is more important than the level.

Last month both surveys gave odd results: much weaker than expected, and weak in strange areas. Sure, the weather was cold. But was it cold enough to eliminate 25 thousand accounting jobs? Were storms in the Midwest responsible for 15 thousand educator job cuts? Where did they all go–Account-temps? Temporary employment rose by 40 thousand—usually a good sign. But maybe not.

The frustrating thing about an outlier report is you can’t tell whether it’s an outlier or a trend-change for months—when the dissonant data are either refuted or confirmed by additional information. One thing that’s certain: the Fed will have some interesting discussions as they debate the taper-tango.

Douglas R. Tengdin, CFA

Chief Investment Officer

Where Are We?

As 2013 ends, how is the economy doing?

There are many ways to answer that question, but one the clearest is to compare employment, economic activity, and the market. Since the Financial Crisis, both the market and the economy have recovered and hit record levels, while employment is still below its 2007 peak. This gap—sometimes call the output gap—is a big source of concern for economists and analysts.

The economy is now producing $850 billion more in inflation-adjusted output with 2 million fewer workers than it had in 2007, so corporate profits are at record levels and over 40% higher than their pre-recession peak. This is a principal reason why the stock market has advanced so significantly, now 17% above its October 2007 record.

Why this is happening isn’t so complex, either. Capital is cheap; labor is expensive. The Fed has kept short-term rates below inflation since late 2008. Only now are they beginning to take baby-steps to normalize this situation, although many expect rates to remain low for a long, long time.

If the economy strengthens and unemployment falls, can profits stay this high or will they revert? That’s the 20 trillion dollar question—the size of the US stock market.