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By HaleStewart January 7, 2018 7:42 am
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US Economic Week in Review: The Labor Market is on Solid Footing

            Jobs data is one of the most important sets of economic information used by economists.  A high rate of hiring is prima facia evidence of a growing economy and increasing demand.  Strong jobs growth also supports higher consumer spending, which is responsible for 70% of US economic growth.  This is why the initial claims for unemployment and the monthly payrolls report are two of the most watch data metrics in the financial press.

            Employment data released since the first of the year point to a strong jobs market.  Let’s begin with the 4-week moving average of initial jobless claims, which is a component of the leading indexes compiled by the Philadelphia Federal Reserve and the Conference-Board:

This data point is currently at its lowest level since the early 1970s.  Data from eight of the largest states (Texas, Florida, California, Michigan, Ohio, New York, Pennsylvania, and Illinois) are all behaving within standard historical patterns. 

            Let’s now turn to the BLS’ Employment report, starting with the following data from the Household Survey:



The top chart shows the total non-institutional population (in blue) and the civilian labor force (in red).  The former is essentially anyone that could theoretically work, while the latter is anyone who, according to BLS definitions, is “working” or “unemployed.”  Notice that the amount of blue (which represents the gap between the civilian non- institutional population and civilian labor force) has increased since the end of the Great Recession.  This is another way of presenting the decline in the labor force participation rate, which is represented in the second chart.  There’s been a large amount of research on this topic, with the general conclusion that retiring baby boomers have caused at least half of this decline.  Weakening participation by the employment-aged population (primarily high school drop-outs and those with only a high school diploma) make up most of the remainder.  The bottom shows the employment/population ratio, which has consistently increased over the last five years, indicating that the number of people participating in the jobs market has been steadily increasing.

            Let’s turn to the establishment report, beginning with a look at the macro-level data:

This chart shows the 3, 6, and 12-month moving average of monthly establishment job gains, which helps to remove the noise from the monthly jobs report.  The 3, 6 and 12-month average are currently, 204,000, 166,000 and 171,000, respectively, which are good numbers for an expansion in its 8-9 year.

            Looking at the data from a goods-producing/service perspective, we get the following charts:


The top two charts show the total number of goods-producing jobs (on the left) and the Y/Y percentage change in this category (on the right).  This area of the jobs market is doing well; it’s pace of overall and Y/Y growth is increasing.  But there only represent 38% of the jobs market.  While the number of service-producing jobs is still increasing (lower right) the pace of growth is decreasing (lower left).  All areas of the service sector are experiencing Y/Y weakness: transport and utilities, retail, professionals, education/health, finance and leisure.  The information jobs sector is actually decreasing on a Y/Y basis. 

            Finally, we have wages:

The weak pace of wage growth continues to be a sore spot in this expansion.

            For an expansion that is now in its 8th year, the employment situation is in surprisingly good shape.  Establishment job growth is remarkably strong.  The employment/population ratio is rising.  And labor force participation ratio is fair, but that’s to be expected with an aging population.  Wages remain the weak spot. 

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 


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