Jack Dunn - Reclaiming Common Sense

How low can unemployment fall?

This is hiring season. The non-seasonally adjusted (NSA) Current Employment Statistics worker data should rise through July as should the NSA Current Population Survey (CPS) jobs data. The seasonally adjusted (SA) CES private sector data is what was used to create the "Obama Jobs Streak." The "streak was a FACT (False Assertion Considered to be True.) It was one of his "Economic Urban Legends." The April ADP Payroll report was released this past Wednesday. The report was better than the April 2017 report. The annual growth rate was better than the April 2017 and better than the March 2018 ADP growth rates.  This column produced a Employment Situation Report Forecast Article for this month's report. The questions were:

  • How much will the NSA U-3 Unemployment Level drop
  • How Much would the NSA CPS Full-time number rise? How much would the NSA PT number rise? Would the April SA CPS total number be negative, again?
  • How Many Non-Seasonally adjusted CES workers would be added to the economy? Would it be over 1 million? Over 1.1 million? Over 1.2 Million?
  • Could we add over a million workers, could we add over 1 million non-seasonally adjusted jobs, could we cut 750,000 non-seasonally adjusted U-3 unemployed workers, and see the SA participation rate fall?

What did the April Employment Situation Report reveal?

Non-Seasonally Unemployment dropped by 739,000 workers. The NSA CPS U-3 unemployment number dropped from 6.671 million to 5.932 million workers. This is comparable to the drops seen during April of 2016 and April 2017. Sooner or later we will "run out" of unemployed workers. It is relatively "easy" to drop 700.000 workers when there are 8.1 million unemployed workers (2016) or 7.2 million unemployed workers (2017.)

Non-Seasonally Adjusted Full-time jobs jumped by 916,000 jobs. This is considerably better than April 2016. We also saw a non-seasonally adjusted drop in part-time jobs of 445,000 jobs. It may not have been as good as last April, except you have to realize that we are adding full-time jobs. A cursory look at the multiple job holder data indicates that the non-seasonally adjusted level dropped from 7.771 million to 7.637 million. This means that people don't have to work

Workforce Participation is, in general, improving. The participation rate is the number of people working full-time jobs, part-time jobs, and those who are unemployed divided by the workforce population. We lost 445,000 and we lost 739,000 unemployed workers. We would have had to add 1.184 million full-tome jobs to offset those losses in order to keep the number of participants the same. We would have needed another 165,000 jobs to keep up with the population growth.  This column will go into more detail in the "Five Presidents at 15 Months" article next week. Suffice it to say that President Trump inherited the lowest participation rate since, and including, President Reagan. President Trump has seen his participation rate improve since taking office.The peak participation rate month is normally July. We saw the participation slide slow during July 2015 when the participation rate was 63.19%. July 2016 its was 63.36%. The participation rate July 2017 was 63.46%.

If we are at full-employment now, what were we during April of 2000? We had an unemployment rate, non-seasonally adjusted, of 3.68%. The lowest unemployment rate for the month of April, since January 1979, was 3.67% during April 2000. The participation rate at that time was 67.04%. The participation rate this April was 62.69%. If this month we had full employment did we have "fuller" employment  at that time?

The Headline Seasonally Adjusted Private Sector Number was up 168,000. The upward revision of 37,000 private sector workers to March 2018 "borrowed" 37,000 from the April number. If March was unchanged then the April number would have been 205,000. This number is comparable to what we saw during April 2016, April 2017, and April 2010. It was much better than April 2012.

The Seasonal Factor  was appropriate this month. The seasonal factor used to convert month NSA CES data to the reported SA CES data has been sliding for decades.  This boosted the monthly seasonally adjusted private sector a little. The real story is the non-adjusted worker level rose by 988,000 and would have increased by more than a million workers, and more than April 2017, if the data from March had not been revised as much as it was.

This was a seriously good report. The "experts" were hoping for 190,000 workers to be added to the economy. There were 37,000 workers added to the March seasonally adjusted level and 168,000 to April, so we had a combined growth of 205,000 workers. Some were surprised that the unemployment rate dropped to the lowest "ever" since 1979. This column had projected the drop after the release of the mid-April continuing claims data. There is considerable data to review. How did we do on wages? How did we do on sector growth? Did the sector growth mirror what was seen in the ADP report? How are men doing? How are women doing? Which age group is doing better?

It's the economy.