New NBER Working Paper: Improving the accuracy of economic measurement with multiple data sources: The case of payroll employment data

A new NBER Working Paper, "Improving the accuracy of economic measurement with multiple data sources: The case of payroll employment data," by Cajner, Crane, Decker, Hamins-Puertolas, and Kurz.

Abstract:

This paper combines information from two sources of U.S. private payroll employment to increase the accuracy of real-time measurement of the labor market. The sources are the Current Employment Statistics (CES) from BLS and microdata from the payroll processing firm ADP. We briefly describe the ADP-derived data series, compare it to the BLS data, and describe an exercise that benchmarks the data series to an employment census. The CES and the ADP employment data are each derived from roughly equal-sized samples. We argue that combining CES and ADP data series reduces the measurement error inherent in both data sources. In particular, we infer “true” unobserved payroll employment growth using a state-space model and find that the optimal predictor of the unobserved state puts approximately equal weight on theCES and ADP-derived series. Moreover, the estimated state contains information about future readings of payroll employment.

Available at NBER. 

Not Many See Full Employment in U.S. Economy: Conference Update

From Bloomberg

Central bankers are already making waves at what may well be the monetary-policy event of the year in the U.S.

Federal Reserve officials and leading academics are gathered in Chicago Tuesday and Wednesday to debate whether policy makers need to overhaul their strategies, tools and communication for managing inflation and preparing for the next economic downturn. 

Federal Reserve Chair Jerome Powell kicked off the conference Tuesday with a few words on the global trade tensions that are rattling financial markets and leading investors to believe the Fed will cut rates soon.

Note on the April 2019 U.S. Employment Situation: U-Rate 3.6%; Jobs +263,000

OVERVIEW

• Total non-farm payroll employment increased by 263,000 and the unemployment rate declined to 3.6 percent, moving down 0.2 percentage point from the previous month according to the Bureau of Labor Statistics.  
• The Labor Force Participation (LFP) rate declined by 0.2 percentage point to 62.8 percent. Nonetheless, the rate was unchanged from a year ago. The Employment-Population ratio also remained at 60.6 percent. Since October 2018, the rate has been either 60.6 percent or 60.7 percent. 
• Professional and Business Services (+76,000) and Construction (+33,000) led all sectors in the April payrolls. Employment in Health Care (+27,000) did not finish in the top two sectors for growth but along with Professional Services (+535,000) added the most jobs over the past year with Health Care adding +404,000 jobs.
• With gains in nonresidential specialty trade contractors and in heavy and civil engineering, Construction has added 33,000 jobs. For the year, the sector has added 22,000 jobs. 
• Manufacturing sector employment (+4,000) changed little for the third month in a row. In the 12 months prior to February 2019 the industry added on average 22,000 jobs per month. 
• Average hourly earnings rose by 6 cents to $27.77. In April, average workweek for all employees decreased by 0.1 hour to 34.4 hours matching the rate for February 2019.  
• The number of persons employed part-time held was unchanged at 4.7 million in April. The number of long-termed unemployed (greater than 27 weeks) remained unchanged at 1.2 million and remained to account for 21.1 percent of all unemployed. 
• The following sectors saw little or no change in employment:  Mining, Wholesale Trade, Transportation and Warehousing, Information, Leisure and Hospitality, and Government.

ANALYSIS

This month’s report is a rebounding blockbuster, considering two months ago the U.S. stock market and policy makers were stunned by the creation of only 56,000 jobs. (The original number was 33,000).  

Wall Street estimated the April payrolls number at 185,000 jobs.  Earlier in the week, the ADP National Employment Report,  estimated the creation of 275,000 new private sector jobs; the BLS reported private sector job creation at 236,000 jobs. 

Retail trade changed little in April; the sector was down 12,000 jobs but the motor vehicle and parts dealers subsector added 8,000 jobs. General merchandise stores suffered a loss of 9,000 jobs. 

Revisions to previous reports were mixed. The February payrolls number was revised upward to 56,000 from 33,000 and the March number was revised down from 196,000 to 189,000. Still the revisions identified 16,000 more jobs than previously reported.  The three-month moving average settled at 169,000 per month. Similar revisions from the earlier three months resulted in a three-month average of 180,000. 

The unemployment rate of 3.6 percent is the lowest since 1969. 

The current economy, based on supply-side reforms, is benefiting workers and instilling confidence in consumers. Not so long ago, market watchers were worried about the slowdown in consumer spending as a bellwether of an almost certain downturn. 

On Thursday, the BLS reported than nonfarm business sector labor productivity increased 3.6 percent in the first quarter of 2019, with output increasing by 4.1 percent and hours worked increased 0.5 percent. Along with productivity (another blow-out number), the job market is at a sweet spot. 

Today’s report noted that average hourly earnings over the past year have increased by 3.2 percent.  Workers and consumers are more careful about how they treat homeowner equity which is 16 percent higher than 2006, the advent of the Great Recession. Apparently increased wages serve as a bulwark against reckless home equity borrowing. 

As a result, workers are saving more. The article to read is “Why Are Americans Suddenly Saving?” by Matthew C. Klein in Barron’s on April 22, 2019.

Source: Author’s calculations based on BLS and US Census historical data (Total Retail Sales)


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Statista takes a look at yesterday's JOLTS data

You will find more infographics at Statista

Notes on the March 2019 U.S. Employment Situation: U-Rate: 3.8%; Jobs: +196,000

OVERVIEW

• Total non-farm payroll employment increased by 196,000 and the unemployment rate remained 3.8 percent, according to the Bureau of Labor Statistics.  
• The Labor Force Participation (LFP) rate was little changed at 63.0 percent. This gauge of employment has hardly moved over the past year. The Employment-Population ratio also remained at 60.6 percent.  
• Health Care (+49,000) and Professional and Business Services (+34,000) led all sectors in the March payrolls. Both sectors led job creation over the past twelve months with 398,000 and 311,000 jobs, respectively. 
• According to the BLS, the following sectors saw little or no change in employment:  Mining, Wholesale Trade, Retail Trade, Transportation and warehousing, Information, Financial Activities and Government.
• After adding 1,000 jobs in February, the Manufacturing sector lost 6,000 jobs, almost all of those jobs in motor vehicles and parts. 
• Average hourly earnings rose by 4 cents to $27.70. In March, average workweek for all employees rose by 0.1 to 34.5 hours after seeing a decline in February by 0.1 hour. 
• Employment continued to trend up in Food services and drinking places in March (+27,000), in line with its average monthly growth over the prior 12 months said BLS.
• The number of persons employed part-time held steady at 4.5 million in March.
• The number of long-termed unemployed (greater than 27 weeks) remained unchanged at 1.3 million. This group represents 21.1 percent of all unemployed.

ANALYSIS

Anyone looking for a stronger revision to the February employment situation report of 20,000 jobs will be disappointed by the final print for the month: 33,000.  That new number was the weakest since September 2017.

Even January was revised upward only slightly from the February-revised 311,000 to 312,000. 

The BLS said the revisions resulted in a three-month average of 180,000 (down for the same period for the first quarter of 2018).  

Still today’s number, a positive snap-back, encouraged some optimism. The headline of 196,000 new jobs did top Wall Street expectations of 180,000 for the month. Marvin Loh, global macro strategist at State Street, told Yahoo News that the March jobs report will be “the first clean one in a while” now the fallout from the government shutdown is mostly over. 

The widely-read ADP payroll processing firm survey earlier this week reported a gain of 129,000 private sector jobs, the BLS contrasted with 182,000 jobs. 

The question remains the cohort that is still sidelined from the job growth of the past decade. The BLS reports that 95.5 million were out of the labor force compared to 95.4 last March The employment-population ratio was 60.6 percent in March; the BLS noted that this ratio has been either 60.6 or 60.7 percent since October 2018. 

Two closely-watched indicators, persons marginally attached to the labor force and discouraged workers have changed little over the past year. 

This report also showed ongoing upside. The unemployment status by educational attainment showed declines among the four major groups. The unemployment rate for workers with a high school diploma but no college declined from 4.7 in March 2018 to 3.7 in March 2019. Those with the bachelor’s degree or more continue to see lower unemployment at 2.0 percent. 

The American jobs machine continues to grow over a longer-term horizon. Since January 2007, months before the Great Recession, the American economy has added 12.9 million jobs with the construction, manufacturing and information sectors the only losers over this period. (See chart.)

Source: Author’s calculations based on BLS historical data

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Notes on today's U.S. jobs report: A 3.7% unemployment rate and 250,000 new jobs

OVERVIEW

• The unemployment rate remained at 3.7 percent in October with payrolls expanding by 250,000 jobs, according to the Bureau of Labor Statistics. 
• According to the BLS, Hurricane Michael, which fell while the agency collected data, had no noticeable effect on job estimates.
• The Labor Force Participation (LFP) rose 0.02 to 62.9 percent. The Employment-population ratio also finished up for the month at 60.6 percent. The number of unemployed for the month was 6.1 million representing a decline over the year of 449,000 persons. 
• Job gains took place in, Health care (+36,000), Manufacturing (+32,000), Construction (+30,000) Professional and business services (+35,000) and the Transportation and warehousing sector (+25,000).
• Mining grew by 5,000 jobs in October while Leisure and hospitality gained 42,000 withstanding the impact of Hurricane Florence. While employment was unchanged in this sector, the two-month growth matched the 12-month average at 21,000 per month.
• In addition, according to the BLS, the following sectors saw little or no change in employment: Wholesale trade, Retail trade, Information, Financial activities and Government.
• Over the year, average hourly earnings have increased by 83 cents or 3.1 percent. In October, the average hourly private non-farm wage rang in at $27.30, an increase of five cents. The average workweek for all employees clocked in at 34.5 hours.
• The number of persons employed part-time for economic reasons was unchanged at 4.6 million. The number of long-term unemployed also changed little at 1.4 million. This group represents 22.5 percent of all unemployed persons.

ANALYSIS

Total nonfarm payroll employment rose by 250,000 in October.  Not knowing how to gauge weather interruptions from last month, Wall Street forecasts provided a wide range of payroll increases between 105.000 to 253,000  jobs. 

The BLS revised numbers for September downward (from 134,000 to 118,000) and upward for August (from 270,000 to 286,000). These revised figures show that job gains have averaged 218,000 over the past three months. 

The BLS reported 246,000 new private sector jobs were created compared with the ADP payrolls report released earlier this week of 227,000 private payrolls.  

The continued growth in the manufacturing sector emerged as one of the highlights on today’s report. The sector has added 296,000 jobs over the past year— most of it coming from durable goods production. Here, in this sector, the workweek remained steady at 40.8 hours. 

While the economy is at full employment, worker productivity is lagging. Output, the amount produced by workers, has been sluggish. At 1.3 percent in the most recent measure, productivity has failed to surpass 2 percent for the last 32 quarters. Nearly two decades ago, productivity gains fell regularly in the 3 percent range. 

According to the Wall Street Journal, Chicago Fed President Charles Evans noted the importance of productivity to the nation’s long-term growth in speech earlier this year. “Higher sustainable growth would be great. However, we can’t get there without boosting the underlying trends in labor input or productivity,” Mr. Evans said. 

Manufacturing sector labor productivity increased 0.5 percent in the third quarter, according the third quarter report released earlier this week.  There’s some good news for workers: Average hourly earnings have recovered from the Great Recession but still below the 2008 pre-recession peak. Labor force participation, which has languished as a result of the retiring baby-boom workers inched up by 0.2 percentage point over the year.  These two trends point to mounting pressures on the Federal Reserve Bank to stick to its plan to raise interest rates through 2019.

U.S. Job Growth over the last 7.8 years: Pretty good!

You will find more infographics at Statista

Robert Gordon revisits the Phillips Curve

"Friedman and Phelps on the Phillips Curve Viewed from a Half Century's Perspective" a new NBER working paper by Robert J. Gordon.

Abstract:

In the late 1960s the stable negatively sloped Phillips Curve (PC) was overturned by the Friedman-Phelps natural rate model.  Their PC was vertical in the long run at the natural unemployment rate, and their short-run curve shifted up whenever unemployment was pushed below the natural rate.   

This paper criticizes the underlying assumption of the Friedman-Phelps approach that the labor market continuously clears and that changes in unemployment down or up occur only in response to "fooling" of workers, firms, or both.   A preferable and resolutely Keynesian approach explains quantity rationing by inertia in price and wage setting.  The positive correlation of inflation and unemployment in the 1970s and again in the 1990s is explained by joining the negatively sloped Phillips Curve with a positively sloped dynamic demand curve.  For any given growth of nominal GDP, higher inflation caused by adverse supply shocks implies slower real GDP growth and higher unemployment.  

This "triangle" model based on inflation inertia, demand, and supply worked well to explain why inflation and unemployment were both positively and negatively correlated between the 1960s and 1990s, but in the past decade the slope of the short-run Phillips Curve has flattened as inflation exhibited a muted response to high unemployment in 2009-13 and low unemployment in 2016-2018.   

It remains to be seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation, thus reviving the stable Phillips curve of the early 1960s, or whether inflation will continuously accelerate as Friedman and Phelps would have predicted.

Gated version available here. 

Note on the U.S. Employment Situation: July 2018 - 3.9% U-Rate; +157,000 jobs

OVERVIEW

• The unemployment rate declined to 3.9 percent in July with payrolls expanding by 157,000 jobs, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.9 percent. The employment-population ratio rose in July to 60.5 percent; it has increased by 0.3 percentage point over the year. The number of unemployed for the month was 6.3 million. Since last year 676,000 persons left the status of unemployment. 
• In July employment grew in the manufacturing, health care, construction and professional services.
• Manufacturing added 37,000 jobs with durable goods manufacturing accounting for most of the gain. Over the past year manufacturing has added 327,000 jobs.  
• Professional and business services added 51,000 jobs. This sector has added 518,000 jobs over the past year. 
• Employment in the other major sectors—mining, wholesale trade, transportation and warehousing, information, financial activities, and government —changed little over the month.
• Over the year, average hourly earnings have increased by 71 cents or 2.7 percent.
• Among major worker groups he jobs rates remained unchanged except for adult men and Whites. 

ANALYSIS

The U.S. economy added 157,000 jobs failing to meet the consensus figure of 190,000.  However, the report looks even better when considering the moving three-month average of 224,000. That’s because figures for the previous two-months were revised upward (+244,000 to +268,000 for May and +213,000 to +248,000 for June). 

The number of part-time workers was little changed in July at 4.6 million but declined by 669,000 over the past year. The number of long-term unemployed (more than 27 weeks) also was unchanged at 1.4 million. This group accounts for 22.7 percent of all unemployed. 

Retail trade changed little with an increase of 7,000 jobs; those gains were essentially wiped out by the decline of 32,000 jobs in sporting goods, hobby, book and music stores. Manufacturing continues to grow although it is far from pre-recession levels. (See chart.) 

Manufacturing grew in the transportation equipment subsector (+13,000), machinery (+6,000) and electronic instruments (+2,000).  Manufacturing has not recovered the jobs lost after the onset of the Great Recession.  It is unclear how the pending trade and tariff wars will play out in the job market over the next few months.  Opinions are varied.  "While the ongoing trade dispute may discourage businesses to invest and hire down the road, today's jobs report suggests the jobs market is not yet collateral damage," said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings in New York.

The threat of automation, another paper on the topic

A new NBER Working Paper by David E. Bloom, Mathew McKenna, Klaus Prettner  "Demography, Unemployment, Automation, and Digitalization: Implications for the Creation of (Decent) Jobs, 2010-2030"

Abstract:

Globally, an estimated 734 million jobs will be required between 2010 and 2030 to accommodate recent and ongoing demographic shifts, account for plausible changes in labour force participation rates, and achieve target unemployment rates of at or below 4 percent for adults and at or below 8 percent for youth. The facts that i) most new jobs will be required in countries where "decent" jobs are less prevalent and ii) workers in many occupations are increasingly subject to risks of automation further compound the challenge of job creation, which is already quite sizable in historical perspective.  Failure to create the jobs that are needed through 2030 would put currently operative social security systems under pressure and undermine efforts to guarantee the national social protection floors enshrined in the Sustainable Development Goals (SDGs).

Paper available for NBER members.

ADP Jobs Number: 204,000 Private Non-farm Jobs Added in April 2018

The Lack of Wage Growth and the Falling NAIRU; "Underemployment reduces wage pressure."

From an NBER Working Paper by David N.F. Bell and David G. Blanchflower released today

Abstract:

There remains a puzzle around the world over why wage growth is so benign given the unemployment rate has returned to pre-recession levels.  It is our contention that a considerable part of the explanation is the rise in underemployment which rose in the Great Recession but has not returned to pre-recession levels even though the unemployment rate has.  Involuntary

part-time employment rose in every advanced country and remains elevated in many in 2018.

In the UK we construct the Bell/Blanchflower underemployment index based on reports of whether workers, including full-timers and those who want to be part-time, who say they want to increase or decrease their hours at the going wage rate.  If they want to change their hours they report by how many.  Prior to 2008 our underemployment rate was below the unemployment rate.  Over the

period 2001-2017 we find little change in the number of hours of workers who want fewer hours, but a big rise in the numbers wanting more hours.  Underemployment reduces wage pressure.

We also provide evidence that the UK Phillips Curve has flattened and conclude that the UK NAIRU has shifted down.  The underemployment rate likely would need to fall below 3%, compared to its current rate of 4.9% before wage growth is likely to reach pre-recession levels.  The UK is a long way from full-employment.

A gated version of the paper is available here. 

ADP for January 2018: +234,000 private sector jobs

The latest from ADP payroll report for January 2018

Manufacturing says "See you in December": BLS: NFP +148,000 U-Rate 4.1%

OVERVIEW

• The unemployment rate remained at 4.1 percent for the third consecutive month in December while payrolls expanded by 148,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.7 percent. The employment-population ratio was unchanged at 60.1 percent. 
• Employment in health care increased by 31,000 while construction added 36,000 jobs. 
• The manufacturing sector added 25,000 jobs. The BLS reports that this sector added 196,000 jobs in 2017 after a dismal 2016 which saw a loss of 16,000 jobs. 
• Professional and business services kept pace in 2017 with the previous year adding 44,000 jobs per month. In December, the sector added 19,000 jobs 
• Employment in the other major sectors— mining, wholesale trade, transportation and warehousing, information, financial activities and government —changed little over the month. 
• Over the year, the BLS reports the unemployment rate and the number of unemployed were down by 0.6 percentage point and 926,000, respectively.

ANALYSIS

In December, the American jobs machine took a breather. The payroll employment (+148,000) fell below the Wall Street consensus of 190,000 jobs.  According to an ADP report earlier this week, private sector employment increased by 250,000 jobs in December.  The unemployment rate for the major work groups remained low. The unemployment rate for African-Americans fell to 6.8 percent the lowest ever.  The retail sector fared better under the last year of the previous administration where it increased by 203,000 in 2016. In 2017 it lost 67,000. Employment in general merchandise edged down in 2017 shedding 67,000 jobs. However, Manufacturing added 196,000 jobs in 2017 following little net change in 2016. The November employment report was revised up from +228,000 to +252,000 and the change in October was revised down from +244,000 to +211,000 (Combined over two months, a net loss of 9,000 jobs). Over the past three months, job gains have averaged 204,000 a month.  In December, average hourly earnings for all employees increased by 9 cents to $26.63; over the past year, hourly earnings have risen by 65 cents or 2.5 percent. The labor force participation rate has not changed over the year. It remains at 62.7 percent.  The number of workers employed part-time for economic reasons has declined by 639,000 over the past year.  

 

The Evolution of U.S. Monetary Policy

A very readable overview of monetary policy in the United States by Robert L. Hetzel, a staff economist at the Federal Reserve Bank of Richmond.

Abstract: 

Since the establishment of the Federal Reserve System in 1913, policymakers have always pursued the goal of economic stability. At the same time, their understanding of the world and of the role of monetary policy has changed dramatically. This evolution of views provides a laboratory for understanding what kinds of monetary policy stabilize the economy and what kinds destabilize it.

Available here.