Jack Dunn - Reclaiming Common Sense

The Monthly Employment Situation Report, or Jobs Report, will be released next Friday. The Jobs report is created using two data sets: The Current Population Survey (CPS) data and the Current Employment Statistics (CES) data. The CPS data, or  household data measures the number of full-time jobs, part-time jobs, and unemployed workers, as well as the workforce population. The CES data, or employer data, measures the number of workers. Each data set has a non-seasonally adjusted (NSA) data set an a seasonally adjusted (SA) data set. The Seasonal factors used to convert the recorded NSA data to the reported SA data. The CES data is fairly straightforward to project because there is only one data set with a  range of potential growth and a range  of seasonal factors. The CPS data has so many seasonal factors and growth possibilities that the best that can be done is a range of individual changes and a look at the trends in the unemployment and participation rates.


We should see growth in the number of private Sectors workers between 0.14% and 0.20%. The past two Augusts have been very slow, nearly contracting in the NSA CES private sector workforce. This was not reported elsewhere - the seasonally adjusted data is what mattered to the White House and therefore the reporters. The times that we have seen growth under 0.15% we have been heading into a recession.


We may see the seasonal factor creep higher. This is going to be key to the report. If the seasonal factor is closer to 0.9928 and we have strong growth then we could have a blow-out number. If the authors of the report reverse course and come in with a value closer to 0.9920 it could "cost us" 74,000 workers.


Will we see a Presidential Honeymoon Bump? We saw spikes in worker growth during 1981, 1985, 1989, 1993, 1997, 2005, and 2013. The only two post-election Augusts where we have seen a bump that was negative was during 2001 and 2009. The smallest Honeymoon Bump was 0.17% during 1997.The problem is that the trend is not our friend . The growth rate during 2015 was zero and 0.03%, or almost zero, during 2016. The only reason why the "President's Job Streak" was maintained was the seasonal factors were boosted.


Will President Trump's First eleven months in office look like President Clinton's, President Reagan's or the two most recent Presidents? President Clinton added private sector workers through the end of his first calendar year in office. All President's lose workers during January. President George W. Bush, Bush 43, and President Obama, and even President Reagan experienced recession during their first term in office. The data recorded so far has been solid. That is the non-seasonally adjusted data. What is being reported has been skewed lower than it should have been


Reality is Rearing its head and it looks good. This column has written articles stating that we are on track for a record retail sales year, according to the MARTS data. The July New Construction data was solid. The July New Home Sales data was "the best during the past decade." The existing home sales data was "the best during the past decade." New home sales generate other sales and other jobs. Existing home sales can generate more retail sales. The weekly unemployment data is at generational lows for the Second week of August, the time closest to the CPS and CES survey dates. This week the continuing claims data came in  lower than the second week of August 1971. It is also lower than it was during the second week of July 2017 by 90,000 workers. This means that we could see a drop in the number of unemployed workers by 270,000 or more workers because not everyone who is unemployed receives benefits. The weekly claims data is not directly related to the U-3 unemployment data because they are two different surveys.


The Net-Net is that we should see well over 200,000 private sector workers officially added to the economy. If the economy grows like it did during 2005 or 2013 or even 1989, post-election Augusts, that number could have a "3" in front of it.  Expect a number in the range of 250,000 private sector workers added, remembering that the non-farm payroll data is different from the private sector number. It is entirely likely that the seasonal factor may come down to the 2013 level and that we grow at a rate of 0.10%. It is more likely that we will grow at a rate of 0.15% and have a seasonal factor comparable to last year, netting 274,000 workers. Also remember that if last month's data is upwardly revised by 25,000 jobs that would "rob" 25,000 workers from the August data dropping to a level of 249,000.


We could see a huge drop in Non-Seasonally Adjusted Jobs as people start heading back to school. This is one of the perils of the two data set jobs report. We tend to see seasonal jobs disappear during August as some of those workers return to school or return to their non-Summer work (teachers.) We also could see a huge drop in multiple job workers, so that the drop in jobs does not equate to a drop in workers. So far, during his first six job reports, President Trump has overseen the addition of 4.5 million Full-time jobs and the reduction of part-time jobs and unemployed workers.  The data indicates that this August should see more of the same.


What Seasonally Adjusted Job Streak? The "jobs streak" that President Obama loved to tout was not a jobs streak, it was a worker streak. We normally lose seasonally adjusted CPS jobs during August. This is problematic because we also tend to lose unemployed workers. This means that the seasonally adjusted data could report a drop in the workforce participation rate. The NSA U-3 level "almost always" drops during August. The SA U-3 rate normally remains virtually unchanged.


The Unadjusted Unemployment Rate and the Unadjusted Participation Rate tend to peak during July and Drop during August. It is possible that these two unadjusted rates could plateau during August. The workforce participation rate for the month of August has been improving. The non-seasonally adjusted unemployment rate is most likely going to be the lowest that it has been in more than a decade. The participation rate for August 2017 should be higher than it was during August 2015 and August 2016. Will the seasonal factors turn the net job losses recorded into net job gains being reported. Will the seasonal factors used to convert the unemployment data turn a decline into a smaller decline or a possible increase in SA U-3 workers? If everything works in President Trump's favor a month that normally records a drop in participation may report a jump in participation.


There are many ways to examine the data that is released every month. This column addresses the top-line jobs report data on the day that the report is released. The following week this column will write articles on how President Trump is doing compared to his predecessors in the "Five Presidents" series. Another article will address the changes in the multiple job worker level - those who work two part-time jobs, two full-time jobs, or one part-time and one full-time job. Some sectors, technically "super sectors," have not returned to employment levels seen during July 2007, the peak of the pre-recession job market.Another article will address that data. Men lost over 10 million full-time  jobs during the recession. It took until this year to regain those lost full-time jobs and add to them. Finally, this column will produce an article on impacts on the various age groups in the United States. 


The most important thing to remember is that participation matters. This column devised a measure of unemployment called the U-7 unemployment rate. This measure examines the changes in the participation rate and the changes in workforce population. If we have an unemployment rate under 5%  we are considered to be at "full-employment." If we have an unemployment rate of

4.5% this month and a participation rate of 63.48% this is not as good as when we had an unemployment rate of 5.72% and a participation rate of 66.79%. That 1.2% difference in unemployment is not the same as the 3.3% difference in the participation rate. The participation rate is based on the workforce population. The unemployment rate is the ratio of unemployed workers to participants (participants are employed or unemployed.) If we have people who are neither employed nor unemployed they are "missing participants" and are "effectively unemployed."


If workforce participation improves then so will "real estate participation," also known as the home ownership rate. As home ownership rises spending on those homes will rise, jobs in the retail segment will improve, and people will spend more money. This is called a virtuous cycle. Will this good news be recorded? Will this good news to reported? Time will tell.


It's the economy.