Friday, October 6, 2017

September job loss just temporary, but lower trend worth noting

We knew today’s September jobs report would be unusual because it would be affected by the aftermath of Hurricanes Harvey and Irma, but it ended up being even weirder than I thought.
The U.S. workforce shrank by 33,000 jobs in September as employment was undercut by hurricanes Harvey and Irma. It was the first contraction in seven years. Economists polled by MarketWatch had predicted a 75,000 increase in nonfarm jobs, but estimates were all over the map because of uncertainty about the effects of the storms. The unemployment rate, which was not impacted by the storms, fell to 4.2% from 4.4%. That's the lowest level since December 2000. Wages increased by 12 cents, or 0.5%, to an average of $26.55 an hour, the government said Friday. Hourly pay increased 2.9% from September 2016 to September 2017, up from 2.7%, but the gain was likely inflated by hurricane effects. The average workweek was unchanged at 34.4 hours. The government raised its estimate of new jobs created in August to 169,000 from 156,000. July's gain was cut to 138,000 from 189,000.

Yeah, that'll change things for a month

And if you dig further into the report from the Bureau of Labor Statistics, the numbers get even odder. Particularly when you compare the payrolls report for “jobs” and the household survey for “employed/unemployed.”

Payroll jobs, Sept 2017
Total jobs -33,000
Private sector jobs -40,000

Household survey, Sept 2017
Labor Force +575,000
Employed +906,000
Unemployed -331,000

There’s no way both of those numbers can be correct for the month, and this part of the BLS’s “Frequently asked questions” in the report may explain part of the reason why they are so different.
In the establishment survey, the reference period is the pay period that includes the 12th of the month. Unusually severe weather is more likely to have an impact on average weekly hours than on employment. Average weekly hours are estimated for paid time during the pay period, including pay for holidays, sick leave, or other time off. The impact of severe weather on hours estimates typically, but not always, results in a reduction in average weekly hours. For example, some employees may be off work for part of the pay period and not receive pay for the time missed, while some workers, such as those dealing with cleanup or repair, may work extra hours.

Typically, it is not possible to precisely quantify the effect of extreme weather on payroll employment estimates. In order for severe weather conditions to reduce employment estimates, employees have to be off work without pay for the entire pay period. Employees who receive pay for any part of the pay period, even 1 hour, are counted in the payroll employment figures….

In the household survey, the reference period is generally the calendar week that includes the 12th of the month. Persons who miss the entire week's work for weather-related events are counted as employed whether or not they are paid for the time off. The household survey collects data on the number of persons who had a job but were not at work due to bad weather. It also provides a measure of the number of persons who usually work full time but had reduced hours due to bad weather.
In other words, employers might have said that no one was working, but someone surveyed in the household report might say that the weather caused him or her not to work, so it would be “0 jobs” but “employed”.

The most obvious “storm effect” on the jobs side seems to have come in Food services and drinking places (aka- bars and restuarants), where 104,700 jobs were lost in September. Take that out of the report, and we gained 72,000 jobs in the month, which seems closer to what we’d expect. This also can help explain the surprise increase in average hourly wages of 12 cents an hour, because the losses were so heavily concentrated in that low-wage sector of the economy, and therefore the average went up.

We also could have seen storm effects with the loss of 6,900 jobs in grocery/liquor stores, and in the GAIN of 5,300 jobs in “Building material and garden supply stores” (those businesses would need to staff up so people could get generators and repair their damage). A couple of other gainers that seem to be storm-related include “insurance carriers” to handle the additional claims (+10,900), and transit/ground passenger transportation for evacuations and relocations (+9,400).

Because of the statistical oddities related to the hurricanes, I can’t really make much of a judgment about where this reports portends for the future. The only thing worth noting if you’re looking for trends is that combined downward revision for July and August, which means that for the 6 months before this “loss” in September we were down to gains of 153,000 a month, and the 12-month average gain was 171,583. That’s the slowest 6-month rate in 5 years, and the worst 12-month rate in 6 years.

Combine that with the low unemployment rate (which was already 4.4% before the “drop” in September), and that indicates an economy that may be maxed out 8 years into the Obama Recovery. Being in a spot of full recovery is a good thing, but unless we get legitimate wage gains that hit people who actually work for a living instead of being funneled up to shareholders and oligarchs, things are not going to get any better than we see today.

And as we saw at the start of 2001 (a good comparison to today), there is the potential for that max-out to become a decline if something more than a regional tropical cyclone starts to mess up the economy. We’re not there yet, but don’t fall into a false sense of security.

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