5 Charts to Explain Labor Market Health
Last week, initial applications for unemployment benefits ticked higher; it was not a large increase, but nevertheless is was reminder that while the labor market is indeed resilient, it is no where near full, pre-recession health. Ahead of Friday’s March Employment Situation Report from the Department of Labor, which is expected to show the strongest hiring numbers since last November, a string of economic reports have pointed to a jobs recovery that is once again gaining momentum, but still far from strong.
“The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago,” Federal Reserve Chair Janet Yellen said at a March 31 conference in Chicago. “While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health.”
Data released by the Department of Labor on Thursday revealed that new jobless claims rose to a seasonally adjusted 326,000 in the week ended March 29 — a 16,000-application jump from last week’s 310,000 new claims. While this pace of new jobless claims missed analysts’ expectations for 319,000 new applications and entirely erased the previous week’s decrease, jobless claims are still trending in line with pre-recession levels; before the recession began in December 2007, an average number of 320,000 initial claims were filed each week due to the normal churn in the job market. Plus, economists say any claims figure below 350,000 indicate moderate job creation.
What is more concerning than the uptick in weekly initial applications for unemployment benefits was the corresponding increase in the monthly average. Jobless claims provide the first look at the employment situation for any given month, but since the weekly figures can be volatile, economists use the four-week moving average to understand wider trends in employment, which are far more telling of labor market health than weekly readings. Falling by 9,500 from the previous week’s upwardly revised 327,250, the four-week moving average for the week ended March 22 dipped to 317,750.
In addition, the number of people continuing to receive jobless benefits rose to 2.84 million in the week ended March 22, a 22,000-claim increase from the 2.82 million continuing claims filed in the previous period.
Even though, the four-week moving average rose last week, initial claims for unemployment benefits — which serve as a proxy for layoffs — still paint a picture of a strengthening and resilient labor market. If initial claims for unemployment benefits defined the whole labor market story then the narrative of the jobs recovery would be easy to summarize: progress is steady or at least the labor market situation is not worsening.
The general downward trend of jobless claims offer a sign that even though job creation was not strong in December and was almost equally weak in January, businesses remain confident enough to keep workers even if they were not inclined to increase payrolls. “Layoffs are still very, very low,” Moody’s Analytics senior economist Ryan Sweet told Bloomberg. “Claims are pointing toward an improvement in the job market. It’s evidence that the economy’s struggles this year were temporary.”
In December and January job creation data showed levels of job creation were far too low to dig the U.S. economy out of the crater in the labor market created by the financial crisis and Great Recession. Recent jobless claims data has suggested to Societe Generale economist Brian Jones that since the extraordinarily cold temperatures experienced by much of the country has eased, “we’re likely to get eye-popping numbers for March payrolls. The economy is not in a soft patch.”
Employers — who have generally been cutting back on layoffs, as the jobless claims numbers confirm — will be encouraged to hire more workers once consumer demand picks up. But, it is important to remember, that because consumer demand is intimately connected to the health of the labor market, consumers also needed greater employment gains to feel confident enough to increase their outlays.
A Thursday report from the global outplacement consultancy firm Challenger, Gray & Christmas confirms the narrative jobless claims data has been creating; employers announced the fewest first-quarter job cuts in nineteen years. Last month’s layoff numbers were particularly strong. With just 34,399 positions planned job cuts reported, March saw the second lowest monthly total since January 2013. Only December — when just 30,623 layoffs were announced — reflected a stronger picture of labor market health. March’s layoff numbers fell 18 percent lower than the 41,835 planned job cuts reported in February and 30 percent lower than March 2012’s 49,255 planned job cuts.
“The first quarter typically experiences some of the heaviest job cutting of the year. Since we began tracking planned layoffs in 1989, the first quarter is only slightly lower than the fourth quarter when it comes to the pace of downsizing, with an average job-cut total of just over 205,000. Employers are well below that pace this year, suggesting that layoffs continue to decline in a recovery that is approaching its five-year anniversary,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
Retailers announced the greatest number of job cuts in the first three months of the year, with 18,231 layoffs announced, including 2, 989 in March. Following closely behind was the 15,306 first-quarter job-cuts reported by financial sector. However, neither the retail nor the financial sector announced the heaviest jobs cuts in March; it was the health-care sector that saw the most planned job cuts last month, with employers announcing plans to reduce payrolls by 5,768 jobs. That brings the sector’s total to 10,984 for this year to date. At that level, it ranks fourth among all industries, behind retail, financial, and telecommunications.
“We continue to see downsizing in the health-care sector, as hospitals adjust to lower Medicare reimbursements and cutbacks in Medicaid funding. There has also been a surge in job cuts among the workers hired to sign-up Americans for health insurance under the Affordable Care Act. With the sign-up period ending on March 31, call centers around the country have been purging their payrolls of these temporary employees,” noted Challenger.
Gallup’s monthly job creation index projects the same growth trends as recent jobless claims figures and layoff numbers; it both suggests that businesses are gaining confidence in the strength of the economy and workers are more assured that their employers are not cutting jobs. Ticking up two points from February and six points from a year ago, March produced a reading of plus 23 — a six-year high that nearly tied the plus 24 recorded in March of 2008. When Gallup began tracking worker sentiment in January 2008, the index was at plus 26.
Research firm Gallup conducts a monthly survey to determine how the American public views labor market conditions. Gallup’s Job Creation Index is derived by subtracting the percentage of workers who say their place of employment is letting workers go and reducing the size of its workforce from the percentage who say their employer is hiring and expanding the size of its workforce. In general, the index represents employee perceptions of “net hiring” at their workplaces. March’s reading of plus 23 is based on the 38 percent of U.S. workers who report that their employer is hiring workers and expanding the size of its workforce, and the 15 percent who say their employer is letting workers go and reducing the size of its workforce. Plus, 42 percent of workers in March said their employer is not changing the size of its workforce.
“U.S. workers in the private sector are reporting a more positive jobs situation where they work than at any point in the past six years,” wrote Gallup’s Justin McCarthy in the monthly report. “Combine this with state workers’ record-high job creation reports and the year-over-year improvement from federal workers, and March’s promising Job Creation Index reading would appear to be a positive sign in the long recovery from the 2007-2009 economic recession.”
Labor force participation
Still, Gallup’s payroll to population rate showed few signs of an improved pace of hiring so far in 2014. While March’s reading of 42.7 percent came in slightly above January’s 42.0 percent, it also came in well below February’s 43.8 percent. More significantly, 2014 payroll to population rates are trending lower than the averages for 2013, 43.8 percent, and 2012, 44.4 percent. Payroll to population data “has been lower this year than in prior years, so even an expected increase in the spring and summer may not bring it back to where it was in 2011, 2012, and 2013,” noted Gallup’s Ben Ryan.
Gallup’s unadjusted U.S. unemployment rate for March is 7.5 percent, and including the government’s prior adjustment factors, its jobless rate is at 7.4 percent. The stark difference between the research firm’s unemployment data and that of the federal government, which is hovering around 6.7 percent, is due to the fact that the Labor Department’s unemployment figure is a percentage of the workforce, or adults that are working or actively looking for work. The labor force participation rate was 66 percent in March — a slight downtick from February’s 66.4 percent and March 2013’s 67.7 percent. Meanwhile, Gallup’s payroll to population employment rate shows a much broader picture of unemployment in the United States. The fact that Gallup’s measure remains low is an important indication of the U.S. labor market’s lagging health. As Yellen noted in her Monday speech, the country’s low labor force participation rate is a sign of slackness in the job market.
ADP’s U.S. payroll numbers
But the “ job market is coming out from its deep winter slumber,” noted Moody’s Analytics Chief Economist Mark Zandi, describing the results of the March private employment report compiled by his firm and payroll processor ADP. “Job gains are consistent with the pace prior to the brutal winter,” he added, signalling that job creation may strengthen in coming months.
While the Department of Labor’s jobs numbers reflect a far more positive trend line in payroll additions in February and ADP upwardly revised the month’s job growth by almost 40,000 to 178,000, the ability of the U.S. economy to create jobs has been a subject hotly debated by economists and politicians. Harsh temperatures plaguing much of the United States earlier in the year took most of the blame for U.S. labor market woes, although some analysts feared structural problems were also at fault. But that concern will be wiped away if hiring numbers continue to improve as ADP’s most report report suggests. The payroll processor’s National Employment Report showed U.S. employers added 191,000 jobs last month.
It is important to remember when analyzing jobless claims numbers that the numbers are a leading economic indicator, and therefore only offer indirect clues about the pace of hiring — the other important piece of the labor market story. And, generally, recent data has provided a reason for economists believe job creation — while steady — can hardly be described as strong.
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