Economic Update—May 3, 2013

By Steve Scranton, SVP, CFA
Chief Investment Officer

Employment Report

After discouraging news last month, the Bureau of Labor Statistics (BLS) provided more positive news this month. They also made the February and March data look better than originally reported through upward revisions. The nation added 165,000 jobs in April and, through revisions, added a total of an additional 114,000 jobs in February and March. The mix of the job additions was a bit discouraging as all of the job additions were in the service sectors. The goods producing sectors lost 9,000 jobs while the government sector lost 11,000 jobs. The data shows that the traditional lower paying jobs (i.e. temporary help, retail trade and leisure/hospitality) accounted for 100,000 of the 165,000 new jobs added (61%). The BLS did not cite sequestration as a factor in this report.

The unemployment rate declined from 7.6% to 7.5% and the decrease was not due to a decline in the labor force. The additional measures of the nation’s employment situation showed stability. The labor participation rate was unchanged at 63.3% and the employment‐population ratio improved slightly from 58.5% to 58.6%

Examining the alternative measures of unemployment reveals decreasing unemployment rates in most categories except U6. The number of involuntary part time workers rose by 278,000 last month which explains the increase in U6. This supports the anecdotal evidence that we have heard where many companies are moving employees to part time status because of the pending implementation of the Affordable Care Act (i.e. Obamacare).

March April
U3 (Official unemployment rate) 7.6% 7.5%
U4 (U3 plus discouraged workers) 8.1% 8.0%
U5 (U4 plus marginally employed workers) 8.9% 8.9%
U6 (U5 plus involuntary part time workers) 13.8% 13.9%

Although the official unemployment rate may have fallen, that is not the case for the youth of America. Two out of the three categories of America’s youth saw their unemployment rate increase.

Age March April
16-17 years 27.1% 27.3%
18-19 years 22.1% 22.6%
20-24 years 13.3% 13.1%

Education continues to play a critical role in people’s ability to find work as evidenced by the large increase in the unemployment rate for those with less than a high school education.

Education March April
Less than a high school education 11.1% 11.6%
High school, no college 7.6% 7.4%
Some college or associate degree 6.4% 6.4%
Bachelor’s degree or higher 3.8% 3.9%

The long‐term unemployed saw their picture improve. Whether this was because they found work or because their long‐term unemployment insurance has run out and they have moved to disability insurance or dropped out of the labor force is unclear. The average duration for the unemployed fell from 37.1 to 36.5 weeks. The percentage of people unemployed for more than 27 weeks fell from 39.6% to 37.4%.

On the salary front, after no salary increases in March, workers saw their pay increase by 1.9% on a year‐over year basis in April. This basically matched the inflation rate, so their purchasing power did not increase.

The three indicators that we watch as potential indicators of future increases in full time hiring showed two out of three with negative results.

  • Average work week fell from 34.6 to 34.4
  • Overtime fell from 3.4 hours to 3.3 hours
  • Temporary help rose by 28,000

Analyzing the data shows the following breakdown of where jobs were created:

Industry Sub-industry Industry Jobs
Sub-industry Jobs
Goods Producing (9,000)
Mining and Logging (3,000)
Construction (6,000)
Manufacturing 0
Service Producing 185,000
Whoesale Trade 4,100
Retail Trade 29,300
Transportation & Warehousing 4,200
Information (9,000)
Financial Services 9,000
Professional & Business Services 73,000
Education & Healthcare 28,000
Leisure & Hospitality 43,000
Other Services 3,400
Government (11,000) (11,000)
Total 165,000 165,000

Many people will probably breathe a sigh of relief over today’s employment report. After last month’s disappointing results, fear was building that hiring may start decelerating. Last month’s results may well have reflected businesses being very cautious about what the impact of sequestration would be. Now that the evidence has shown that sequestration has yet to have a major impact, businesses may have now resumed hiring that was put on hold. Sequestration is still in its early stages, so how sequestration may ultimately impact the payroll data remains to be seen. For now, today’s jobs data will probably have little impact on monetary or fiscal policy.