Jack Dunn - Reclaiming Common Sense

Unemployment is Falling 

Employment is Expected to Rise Across the Board

The Monthly Employment Situation report, or Jobs Report, is the "most anticipated" economic report of the month. The jobs report is created using two data sets. The Current Population Survey, or Household data,  measures the number of full-time jobs, part-time jobs, unemployed workers, and estimates the workforce population, among other things.  The Current Employment Statistics (CES), or Establishment Data, measures the number of workers and their wages, among other things. The CPS data is used to calculate the workforce participation rate and the unemployment rate. The CES data was used to create the "Jobs Streak" under President Obama. The data that is recorded is the non-seasonally adjusted (NSA) data. The data that is reported is the seasonally adjusted data. The seasonal factors used to convert the NSA data to the SA data change category to category, month to month, and year to year. We have had significant improvement in the jobs market. We were at a record high for combined full-time and part-time jobs last month. Unemployment claims have been falling. Wages have been rising.  What can we expect this month?

How fast are worker numbers growing? There are two growth rates that we can examine - the Month to Month CES growth rate and the Year to Year CES Growth rate. You will notice that every May since 1979 we have added workers - even during recessions.  We saw consistent NSA CES growth during May 2013, 2014, and 2015 with 0.83% growth month to month. We have seen 0.71% growth to 0.77% growth during May 2011, 2012, and 2017. We  have seen significantly higher growth rates during the 1980s and 1990s. this is only one component of the creation of the seasonally adjusted data. remember that when the June 2016 Jobs Report was released  that it was originally "reported" that the May 2016 number went negative. The White House did not post its consecutive months of Jobs creation tweet that month. They stopped keep track of the consecutive months data and only reported the jobs (private sector workers) added since the adoption of the Affordable Care Act. The Jobs Streak was an Economic Urban Legend.

The seasonal factor used to convert the May data had been falling. The seasonal factors have been rising since 2012 with 2013 being higher than 2012, and each subsequent May has been higher than the prior May.  A higher seasonal factor means a higher seasonally adjusted value. The seasonal factors have been increasing since 2012. If we have the growth that we saw during 2016 and used the seasonal factor that was "used" during May 2016 then we would lose worker, just as happened during 2016. If we grow as we did during May 2013, 2014, and 2015 then we would add 250,000, or more, private sector workers. We could add up to 319,000 workers if the seasonal factor continues to creep higher and if we grow at this 0.87% level. If we "keep pace" with President Clinton and we grow at the pace he did during 1994 then we could add a half million private sector workers.

How fast is the Private Sector growing year over year? The CES data was massively revised during the time between the release of the December Jobs Report and the January Jobs Report. Did we add 196,000 workers or 452,000 workers? The answer is that 256,000 workers were spread across the 2016 and 2017 data. This changed the trajectory of the CES annual growth rate from positive to a continued negative decline from the May 2015 level. The January growth rate was better than January 2017. The same is true for February, March, and April of this year. This past April the annual growth rate was 1.84%. The Annual rate May of 2017 was 1.86%. If we grow at these annual rates then we could see a modest 144,000 to 170,000 workers. We know, from the recent weekly Unemployment claims data that the number of unemployed workers has fallen between the two job report collection periods. These people are probably finding jobs. If we grow as we did during 2013 then we could add 298,000 private sector workers. Remember that the month to month data is projecting up to 331,000 private sector workers. If we grow at the annual rate recorded during 2014 that number explodes to 499,000 workers. Expect a number between 250,000 and 300,000, or roughly 274,000 workers added. Remember that if the data from April is revised up by 24,000 workers then the May data would be reduced by 24,000 to 250,000.

Why does "everybody else" quote the seasonally adjusted data? This column, and its sister site, have been covering the jobs report data for years. There are some months, January and August, when there are huge drops in the worker and jobs levels. There are months where we see worker and jobs spike.  What would you think if there were months when one million government jobs were lost? What would you think if you knew that there are millions of jobs lost every January. How would you feel if you heard that over a million workers found work during May? We should see at least 900,000 workers find work this year, based on last month's annual CES growth rate and based on the situation that every month of this year has been growing faster than their respective months last year.  The headline data is the non-farm payroll data, seasonally adjusted. The data that President Obama was referencing was the private sector worker data, not the jobs data, seasonally adjusted. Seasonally adjusted data is easier to understand. Did we add 200,000 "jobs" or 300,000? Did we need to add 200,000 or 300,000 seasonally adjusted jobs? Is the economy growing or contracting?

The CES headline data is only one component of the jobs report.  Will all sectors add workers this month? What is happening with wages? Both of those will be addressed after the jobs report is released. The data that has been getting considerable attention is the U-3 unemployment data - the unemployment rate and the unemployment level. This is found in the CPS data.

How Low can the May Unemployment Claims Level Fall?  The non-seasonally adjusted continuing claims data during mid-April was 1.865 million claims. The mid-May continuing claims data was recorded at 1.603 million. Not all unemployed workers receive unemployment benefits. Right now the percentage of covered insured is 1.1%. The covered insured last month was 1.3%. We had a non-seasonally adjusted U-3 unemployment rate of 3.68% last month. Could the unemployment rate fall under 3.50% this month? Will jobs increase at a pace greater than the unemployment falls? Will it grow enough to offset the drop in unemployed workers and the growth in the workforce population. Remember we could have 162 million full-time jobs or 162 million part-time jobs, or 162 million unemployed workers and we would still have 160 million participants. This past April we had 127 million full-time jobs, 28 million part-time jobs and just under 6 million unemployed workers. We had 6.572 million unemployed workers during April 2017 and 2.172 million continuing claims. . If there is a gap of 4.5 million between U-3 workers hold this year the unemployment level could bump up to 6.1 million from last month's 5.9 million. If the real difference between the Continuing claims data holds and there are at least a half million fewer unemployed workers this year than we had last May then the U-3 level could drop well below 6.0 million and be lower than the 5.932 million we had last month.  Again, the continuing claims data is entirely different from the U-3 unemployment level. Anything is possible.

May Means Full-time Jobs. Most May data periods we add full-time jobs and shed part-time jobs. We should see at least half a million full-time jobs created. We may see between 1.0 and 1.5 million full-time jobs created. We may see 400,000 to 600,000 part-time jobs shed.  It is possible, not probable, that we could add part-time jobs this month.  There have only been 5 times during the month of May since 1979 when part-time jobs and full-time jobs were added. We already have a record level of combined full-time and part-time jobs. The Jobs Iceberg has melted, now we have a jobs mountain. Will we continue to see men add to their full-time jobs recovery and expansion? The April data was good, regarding the "War on (wo)Men" series. What will happen with the Multiple Job Holder Data? Last month the multiple job worker data was up from April 2017 and down from April 2018. Could we see a decline in the multiple job worker data as people shed part-time jobs for full-time jobs? Could we see a surge in multiple job workers due to relatively low workforce participation?

We are not at Full-employment. There has been endless discussion about how we are at full-employment because the unemployment rate is under 5% and now under 4%. We were under 4% during May of 1999 and May 2000. Here's the thing: We had a participation rate during those months of 66.97%. Right now our participation rate is 62.69%. If this is full employment was that "Fullest Employment?" This column publishes a series titled "Five Presidents at __ months." This is month 16. The Five Presidents article examines changes in full-time and part-time jobs as well as changes in unemployed workers, the U-3 unemployment rate,  and the participation rate. If we compare participation rates there is an obvious difference that impacts the unemployment rate. There are "missing participants." These missing participants are not employed or unemployed, officially. The true unemployment rate is the "U-7" unemployment rate that factors in missing participants. This will be covered in the "Five Presidents" article. There is an official U-6 unemployment rate that factors in people who are working part-time jobs that want full-time jobs. This value has been falling as has the U-7 Rate.

We can expect a considerable number of full-time jobs to have been created this past month. We could anticipate that part-time jobs will fall this month. Unemployment should be lower than the level recorded during May of 2017 and could be lower than that recorded during April 2018. Who is unemployed. This column used to speculate what would happen with the participation rate. The participation rate that is reported is the seasonally adjusted data. This rate is comprised of seasonally adjusted full-time jobs, seasonally adjusted part-time jobs, and seasonally adjusted unemployment numbers. The seasonally adjusted full-time jobs could go negative, the part-time jobs seasonally adjusted data could go positive, and the unemployment level could be seasonally adjusted higher than it was during April. Up could be down in Governmentland.

Expect a strong jobs report. Expect a "jobs number" well over 250,000 and possibly solidly in the 300,000 level. Watch the revisions to the prior data. If the NSA CES worker data is revised up for April by 25,000 workers that would draw down the May data by 25,000. Watch the seasonal factors used to convert the NSA data to the SA data. Watch the sector growth. Watch the growth in male full-time jobs. Watch the multiple job holder data.

It's the economy.