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BLS Labor Report

ResponsiblyIrresponsible
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2/8/2015 2:40:11 AM
Posted: 1 year ago
This seems like a pertinent time to discuss the recent BLS labor report released on Friday. It was probably one of the best we've seen in some time, especially with the probability of upward revisions to come in the next two months. It can be found here for anyone interested: http://www.bls.gov...

To summarize its findings:

1. 257,000 nonfarm payroll jobs were added in January.
2. We saw an additional 147,000 jobs added through monthly revisions for November's and December's numbers.
3. The civilian unemployment rate rose to 5.7 percent from 5.6 percent.
4. The labor force participation rate rose 20 bass points to 62.9 percent.
5. Hourly nominal wages increased by .05 percent, and were up 2.2 percent from a year ago.
6. Marginally attached fell by 358,000 from a year ago, and discouraged fell by 155,000.

The reason I said this was likely one of the best job reports in some time was not necessarily because of the employment numbers themselves. We added, for instance, 423,000 jobs in November. And, though there is room for improvement via revisions over the next few months, 257,000 is by no means stellar, though it's nothing to scoff at.

The key point that I think is worth emphasizing is why the unemployment rate rose, at least chiefly: the participation rate rose. Marginally attached and discouraged fell, underscoring the fact that much of the decline in employment since the crisis isn't shown by the U3 rate alone, and demonstrating cyclical trends, rather than structural ones. This is important for a few reasons.

First, estimates of the "natural rate" of unemployment are around 5.5 percent, according to the CBO. The NAIRU itself is rather fickle, particularly with respect to how it's calculated, but we need to take it for what it is. The notion is that, upon hitting that rate, wage and price pressures build, which has a number of deleterious long-term effects. In other words, the economy may "overheat" if we're not careful. But the movement in participation signals that we may have overstated the degree to which these workers--marginally attached, part-time for economic reasons, etc.--were "unemployable" or structurally unemployed or underemployed. It actually suggests that, much as was in the case in the late 1990s, that the NAIRU may be below 5 percent. That's a double edge sword to some degree, because it does signal that the economy isn't where it ought to be, but it leaves room for the Fed to remain accommodative, in lieu of lifting off later in this year, so we should nevertheless see it as a welcome development.

Another key factor I think merits mention is wages: they grew at the fastest pace in quite a while--I'm not sure precisely what the time frame is, but certainly much more than they've grown in 2014, and likely throughout the past five years, as well, where nominal wages grew at a flat 2 percent year over year and real wages remained virtually unchanged. That wages grew in spite of a decline in participation adds strengths to the findings of economists, such as Blanchflower and Posen as well as Cooper and Luengo Prado, that the bulk of the marginally attached will return to the labor force, and may already be exerting downward pressure on wages, contrary to the findings of Alan Krueger. We certainly don't want to see this as a false positive. After all, wages grew by .04 percent--or so we thought--in November, only to be revised down to a .02 percent and to actually fall .02 percent in December. The participation rate, also, took a bit of a roller coaster ride--up 20 basis points through October and November, down 20 in December, and now up 20.

Ultimately, I see this as an excellent report and a clarion sign that the economy is on the right track.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
Posts: 12,398
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2/8/2015 2:48:33 AM
Posted: 1 year ago
At 2/8/2015 2:40:11 AM, ResponsiblyIrresponsible wrote:
This seems like a pertinent time to discuss the recent BLS labor report released on Friday. It was probably one of the best we've seen in some time, especially with the probability of upward revisions to come in the next two months. It can be found here for anyone interested: http://www.bls.gov...

To summarize its findings:

1. 257,000 nonfarm payroll jobs were added in January.
2. We saw an additional 147,000 jobs added through monthly revisions for November's and December's numbers.
3. The civilian unemployment rate rose to 5.7 percent from 5.6 percent.
4. The labor force participation rate rose 20 bass points to 62.9 percent.
5. Hourly nominal wages increased by .05 percent, and were up 2.2 percent from a year ago.
6. Marginally attached fell by 358,000 from a year ago, and discouraged fell by 155,000.

The reason I said this was likely one of the best job reports in some time was not necessarily because of the employment numbers themselves. We added, for instance, 423,000 jobs in November. And, though there is room for improvement via revisions over the next few months, 257,000 is by no means stellar, though it's nothing to scoff at.

The key point that I think is worth emphasizing is why the unemployment rate rose, at least chiefly: the participation rate rose. Marginally attached and discouraged fell, underscoring the fact that much of the decline in employment since the crisis isn't shown by the U3 rate alone, and demonstrating cyclical trends, rather than structural ones. This is important for a few reasons.

First, estimates of the "natural rate" of unemployment are around 5.5 percent, according to the CBO. The NAIRU itself is rather fickle, particularly with respect to how it's calculated, but we need to take it for what it is. The notion is that, upon hitting that rate, wage and price pressures build, which has a number of deleterious long-term effects. In other words, the economy may "overheat" if we're not careful. But the movement in participation signals that we may have overstated the degree to which these workers--marginally attached, part-time for economic reasons, etc.--were "unemployable" or structurally unemployed or underemployed. It actually suggests that, much as was in the case in the late 1990s, that the NAIRU may be below 5 percent. That's a double edge sword to some degree, because it does signal that the economy isn't where it ought to be, but it leaves room for the Fed to remain accommodative, in lieu of lifting off later in this year, so we should nevertheless see it as a welcome development.

Another key factor I think merits mention is wages: they grew at the fastest pace in quite a while--I'm not sure precisely what the time frame is, but certainly much more than they've grown in 2014, and likely throughout the past five years, as well, where nominal wages grew at a flat 2 percent year over year and real wages remained virtually unchanged. That wages grew in spite of a decline in participation adds strengths to the findings of economists, such as Blanchflower and Posen as well as Cooper and Luengo Prado, that the bulk of the marginally attached will return to the labor force, and may already be exerting downward pressure on wages, contrary to the findings of Alan Krueger. We certainly don't want to see this as a false positive. After all, wages grew by .04 percent--or so we thought--in November, only to be revised down to a .02 percent and to actually fall .02 percent in December. The participation rate, also, took a bit of a roller coaster ride--up 20 basis points through October and November, down 20 in December, and now up 20.

Ultimately, I see this as an excellent report and a clarion sign that the economy is on the right track.

*Increase in participation
~ResponsiblyIrresponsible

DDO's Economics Messiah
amoliterno945
Posts: 1
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2/10/2015 9:57:02 PM
Posted: 1 year ago
Be sure to keep an eye not just on "wages", but total compensation, which also accounts for benefits. Benefits is not mentioned enough and has been much worse. This development may offset wage gains or discourage spending.

Source: BLS slides, somewhere
ResponsiblyIrresponsible
Posts: 12,398
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2/10/2015 10:09:16 PM
Posted: 1 year ago
At 2/10/2015 9:57:02 PM, amoliterno945 wrote:
Be sure to keep an eye not just on "wages", but total compensation, which also accounts for benefits. Benefits is not mentioned enough and has been much worse. This development may offset wage gains or discourage spending.

Source: BLS slides, somewhere

I think that's a fair point. There's a data series on the FRED site that I follow regularly--real nonfarm compensation per hour: http://research.stlouisfed.org...

The problem with it, of course, is that it's measured quarterly, so we're able to line it up with the jobs numbers--i.e., we can have one great month, and then two mediocre months which offset the last two.

Anyway, according to the index, real compensation per hour in Q4 was up .73%. I don't really have a benchmark for that, unfortunately, because when I look at the data series over a longer period, it's extremely volatile. Even if I put the 2014 numbers together, I get it:

2014:Q1 = 1.76%

2014: Q2 = -.03%

2014: Q3 = .37%

2014: Q4 = .73%

But, then if I compare those to RGDP numbers:

2014: Q1 = -2.1%

2014: Q2 = 4.6%

2014: Q3 = 5%

2014: Q4 = 2.6% (first estimate)

That real compensation in Q1 was appreciably higher in Q1 in spite of a significant contraction in RGDP, yet ran negative in Q2 (a correction, perhaps?), is a bit suspect, and suggests to me that there's a bit of noise in the data. You could make the case, I suppose, that moderating real compensation is a *cause* of the improvement in RGDP, but I don't quite buy that at zero nominal interest rates via the paradox of flexibility.

But, by all means, feel free to fill in something I'm missing. To me, the data series is meandering and doesn't send a clear image, but I admit that it's not one I've worked with regularly.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
Posts: 12,398
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2/10/2015 10:09:51 PM
Posted: 1 year ago
At 2/10/2015 10:09:16 PM, ResponsiblyIrresponsible wrote:
At 2/10/2015 9:57:02 PM, amoliterno945 wrote:
Be sure to keep an eye not just on "wages", but total compensation, which also accounts for benefits. Benefits is not mentioned enough and has been much worse. This development may offset wage gains or discourage spending.

Source: BLS slides, somewhere

I think that's a fair point. There's a data series on the FRED site that I follow regularly--real nonfarm compensation per hour: http://research.stlouisfed.org...

The problem with it, of course, is that it's measured quarterly, so we're able to line it up with the jobs numbers--i.e., we can have one great month, and then two mediocre months which offset the last two.

Anyway, according to the index, real compensation per hour in Q4 was up .73%. I don't really have a benchmark for that, unfortunately, because when I look at the data series over a longer period, it's extremely volatile. Even if I put the 2014 numbers together, I get it:

2014:Q1 = 1.76%

2014: Q2 = -.03%

2014: Q3 = .37%

2014: Q4 = .73%

But, then if I compare those to RGDP numbers:

2014: Q1 = -2.1%

2014: Q2 = 4.6%

2014: Q3 = 5%

2014: Q4 = 2.6% (first estimate)

That real compensation in Q1 was appreciably higher in Q1 in spite of a significant contraction in RGDP, yet ran negative in Q2 (a correction, perhaps?), is a bit suspect, and suggests to me that there's a bit of noise in the data. You could make the case, I suppose, that moderating real compensation is a *cause* of the improvement in RGDP, but I don't quite buy that at zero nominal interest rates via the paradox of flexibility.

But, by all means, feel free to fill in something I'm missing. To me, the data series is meandering and doesn't send a clear image, but I admit that it's not one I've worked with regularly.

*notable to line it up with the jobs numbers
~ResponsiblyIrresponsible

DDO's Economics Messiah