US Job Market Not As Strong As Perceived, San Fran Fed Warns

Despite endless streams of Fed Speakers proclaiming, in one form or another, that "we are at, or close to, full employment;" many in America - judging by the election of President Trump - are not feeling as exuberant as the jobs data implies they should be. The SF Fed itself now agrees: "the labor market may not be quite as tight as the headline unemployment rate suggests."

As we detailed previously, between 1948 and 2015, the work rate for U.S. men twenty and older fell from 85.8 percent to 68.2 percent. Thus the proportion of American men twenty and older without paid work more than doubled, from 14 percent to almost 32 percent. Recent data over the last number of years have begun to show that it is not just the American male who is struggling.

The participation rate of female workers is beginning to decline as well. The trend in the workplace has not been our friend.

And The San Franciso"s Fed researchers Regis Barnichon and Geert Mesters question "how tight is the US labor market?"

The current low unemployment rate compared with previous labor market peaks has raised some fears regarding whether the labor market has become too tight. In this Letter, we use a new method to isolate the effects of demographic changes on unemployment, and we find that the demographic-adjusted unemployment rate is still 0.3 to 0.4 percentage point higher than it was at past labor market peaks.

This indicates that the labor market may not be quite as tight as the headline unemployment rate suggests.

The researchers note that there is a major demographic effect in this...

As of February 2017 the shift-share adjusted rate stands at 5.0%—the same level as in the 1979 and 1989 labor market peaks (green line) and only one-tenth higher than the 2006 peak—which appears to confirm the initial impression of a tight labor market.

However, we believe this conclusion is premature. We find that the standard approach to demographic adjustment does not properly capture the full effects of demographic changes. In fact, once we address the shortcomings of the standard approach, the demographic-adjusted unemployment rate appears to be higher than all its previous lows since 1976.

Taking a longer-run perspective, we consider the effects of demographics on unemployment since the mid-1970s and their underlying causes. Figure 2 shows that demographic factors lowered the unemployment rate by about 2 percentage points over this period, according to our adjustment method. This number is substantially larger than that implied by a conventional shift-share analysis, which suggests demographics lowered unemployment by just over 1 percentage point.

So, in other words, if Yellen ever needs an excuse to get dovish, her own SF Fed research department just offered up PhD-style proof that the economy is not as strong as everyone hopes for... due to demographics.

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Furthermore, any reasonable analysis suggests that in the future, the rate at which jobs are being lost to new technologies is only going to double and triple. This is one of the central problems facing society today, not just in the US but all across the developed world.

Where The December Jobs Were: Nurses, Waiters, And Waste Cleaners

Something remains very broken with the US labor market: while the unemployment rate remains just shy of the lowest print since August 2007, rising fractionally to 4.7%, wage growth for most workers, as reported earlier, rose just 2.5%, far below the 4.0% it was when the unemployment rate last hit 4.7%.

This continues to vex economists who have vowed that if only one lowers the unemployment rate far enough, all the slack in the labor market will be soaked up. Alas, that is not happening, for several reasons, the chief of which is that the quality of jobs added remains subpar, with wage growth - especially for less than "supervisory" and management positions - flat.

Still, according to the BLS at least, some 155,000 seasonally adjusted jobs were added in December, arbitrarily goalseeked as they may have been. Where were they?  Here is the answer:

• The most actively hiring sector was health care, which saw a whopping 70,000 increase in December jobs, nearly half of total. Most of the increase occured in ambulatory health care services (+30,000) and hospitals (+11,000). Social assistance added 20,000 jobs in December, reflecting job growth in individual and family services (+21,000).


• Professional and Busines Services rose by a total of 30,500, the second highest gaining category. here the biggest contributor was Administrative and Waste Services to Buildings and Dwellings, which rose by 10,600.


• Another minimum wage job category that added jobs in December was
  Leisure and Hospitality, which added a grand total of 24,000 jobs. here, the biggest contributor was an old favorite: employment in food services and drinking places, which continued to trend up in December (+30,000).
  


• What is curious is that while retailers have been laying off thousands of people left and right, according to the BLS this category added another 6,300 in December, if a substantial drop from November"s 19,500.


• Highly paid construction jobs declined by 3,000 in December after posting a substantial rebound of 17,000 in November


• Just as troubling was the ongoing decline in Information jobs, which declined by 6,000 in December, after dropping double that amount in November


• Also concerning was the sharp drop in Temp Help services: a harbinger of pent up labor demand, this category tumbled by 15,500 in December, the biggest monthly decline in years.


• There was some good news for higher paying wages in December: Employment edged up in manufacturing (+17,000), with a gain of 15,000 in the durable goods component.


• Employment in the highly paid financial activities also continued on an upward trend in December (+13,000).


• Finally, government added an additional 12,000 jobs.

The visual summary is below: