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.

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. 

Good question from LifeHacker: "Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line"

Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line

To put it in perspective: just 52 percent of American adults owned stocks in 2016, according to Gallup. And as you may have guessed, that stock ownership is not evenly distributed among income groups: The Federal Reserve reports that 93.6 percent of families earning a median salary of $251,500 (the top 10 percent of wage earners) owned stock in 2016, while less than 40 percent of families earning up to a median salary of $54,100 did (0 to 50th percentile). Separately, an economist from New York University found that the top 20 percent of earners owned 92 percent of the stocks in 2013. So celebrating record highs for an arbitrary measure that almost half of adults don’t benefit from doesn’t make a ton of sense.

What’s a better measurement for the average worker? I’d posit employment, wages and debt. And here’s the thing. If you don’t have a job at all, you’re likely less concerned with whether the Dow is at 21,000 or 25,000 than when you’ll get your next paycheck. The unemployment rate is at a 17-year low, but economists worry that job growth may begin to slow. Then there’s wages, which are low, and our debt, which keeps increasing*—according to the Federal Reserve, consumer credit card balances are at a new all-time high of $1.0227 trillion, which should give the Dow enthusiasts pause. (*Actually, the Fed recently found we’re slightly less indebted overall because we’re not buying houses, which isn’t exactly a silver lining). Are you really celebrating the Dow’s new watermark if you have over $25,000 in student loan debt?

Federal Reserve Bank of St. Louis: MSA real income in the early 1970s influenced population growth

Extract:

The figure seems to indicate a positive correlation between these variables. For instance, the Seattle, Denver, Anchorage, and San Diego MSAs, which had relatively higher real incomes in 1970, experienced high population growth over the period. On the other hand, the Detroit, Philadelphia, and Pittsburgh MSAs, which had lower real incomes in 1970, seem to have experienced lower (negative) population growth. Not all cities exhibit the positive correlation, however. The Atlanta, Houston, and Dallas MSAs had low average real incomes in 1970 yet experienced high population growth over the period. Incomes in these MSAs, however, have grown rapidly since 1970, which could be a main reason for the population growth.

Read the entire synopsis here.  Complete analysis in PDF. 

New Working Paper: The Employment Effects of Minimum Wages: Some Questions We Need to Answer

Here's a new paper from labor economist David Neumark: 

The literature on the employment effects of minimum wages is about a
century old, and includes hundreds of studies. Yet the debate among
researchers about the employment effects of minimum wages remains
intense and unsettled. This essay discussed the key questions that
have arisen in the past research that, if we can answer them, may
prove most useful in making sense of the conflicting evidence. I
also focus on additional questions we should consider to better
inform the policy debate, in particular in the context of the very
high minimum wages coming on line in the United States, about which
past research is quite uninformative.
Certain to add to the debate on how we think about minimum wages in the U.S.

Massachusetts Benchmarks outlook, pessimistic and grounded on "wage-less job growth"

In its latest dispatch, the Editorial Board of MassBenchmarks isn't pleased with the Massachusetts economy: low worker productivity, unfilled niche jobs and near-zero wage growth. These factors will not bode well for state tax receipts say the consortium of economists. They explore some of the reasons for slow wage growth:

There is also some reason to believe that the declining pricing power of firms in some sectors of the economy has hampered their ability to raise wages. And rising health care costs are consuming resources employers might have used to raise employee wages in settings where these benefits are provided. Additionally, the aging of the workforce and the rising number of retirements have allowed some employers to replace their more experienced and more highly paid staff with younger and presumably lower-paid new staff members.

Read the entire summary here.

Increased consumption for most families despite growth in income inequality

Income inequality has been increasing but so has consumption according to a working paper by Bruce Sacerdote of Dartmouth College. 


Extract:
Despite  the  large  increase  in  U.S.  income  inequality,  consumption  for  families  at  the  25th  and  50th percentiles  of  income  has  grown  steadily  over  the  time  period  1960-2015.  The  number  of  cars  per household  with  below  median  income  has  doubled  since  1980  and  the  number  of  bedrooms  per  household has  grown  10  percent  despite  decreases  in  household  size.  The  finding  of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator (Broda and Weinstein 2008). Small biases in any price deflator compound  over  long  periods  of  time.  Using a  different  deflator  such  as  the  Personal  Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout  the  time  period.  Accounting  for  the  Hamilton (1998)  and  Costa  (2001)  estimates  of  CPI  bias  yields  estimated  wage  growth  of  1  percent  per  year during  1975-2015.  Meaningful growth  in  consumption  for  below  median  income  families  has  occurred even  in  a  prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.


Link: Fifty Years Of Growth In American Consumption, Income, And Wages - 61497-w23292.pdf

The debate on what to do about income inequality intensifies

Or, is the debate shifting to one about semantics?

From Fatih Guvenen and Greg Kaplan in a new NBER paper.

We revisit recent empirical evidence about the rise in top income inequality in the United States, drawing attention to four key issues that we believe are critical for an informed discussion about changing inequality since 1980. Our goal is to inform researchers, policy makers, and journalists who are interested in top income inequality. Our analysis is based on a reexamination of publicly available detailed statistics from two administrative data sources: (i) Internal Revenue Service (IRS) data on total incomes (labor income plus capital income), reported in Saez (2012), and (ii) individual-level micro data on labor income (wage plus self-employment income) from the U.S. Social Security Administration (SSA)  reported in Guvenen et al. (2014).

One key take-away:

Put simply, so far in the 21st century, all the action in top income shares has been S-corporation income at very, very high income levels.

National Bureau of Economic Research Working Paper 23321.