Economic Update—November 8, 2013
By Steve Scranton, SVP, CFA
Chief Investment Officer
The Bureau of Labor Statistics (BLS) released data for the nation’s employment situation for the month of October and the picture is a muddled picture at best. Depending on which of the two surveys you look at, the news either looks encouraging or discouraging.
If you examine the data from the business survey the news looks very encouraging. As a refresher for our readers, the business survey (i.e. Establishment Survey) surveys businesses to find out how many jobs they added or eliminated. The Establishment Survey surprised everyone with a much more positive result than anticipated. The nation added 204,000 jobs in October compared to expectations of only adding 120,000 jobs. The BLS also revised their data for August and September with the net result being that the nation added an additional 60,000 jobs compared to the original data release. Gains were fairly broad based but over 49% of the jobs created were in lower paying industries (i.e. retail, temporary help and leisure & hospitality).
If you examine the data from the Household Survey the results are far different. The Household Survey is a survey of households to determine how many people reported obtaining a job or losing a job. The Household Survey is what is used to determine the unemployment rate. The Household Survey reported that the number of people who are employed in the U.S. fell by 735,000. As a result the official Unemployment Rate rose from 7.2% to 7.3%. The household survey also reported that the number of people not in the labor force rose by almost 1 million people (932,000 to be exact). This caused the Labor Participate Rate to fall from 63.2% of the population to 62.8%, which is the lowest level since 1978.
Past newsletters have discussed the declining labor force as well as the importance of education in finding work. I thought it might be helpful to put this in perspective by providing more detail on this topic. Sorting the data by educational attainments highlights the importance of education in obtaining a job. Note: the total change in labor force reported below does not match the total shown above because the educational attainment data is for the age group of 25 years and above while the total change in labor force is for the age group of 16 years and above.
|Educational Attainment||Change in Labor Force||Change in Employed||Unemployment Rate|
|Less than High School||(130,000)||(179,000)||10.9%|
|High School Graduate||(313,000)||(190,000)||7.3%|
|Some College or 2 Year Degree||(160,000)||(262,000)||6.3%|
|Bachelor’s Degree or Higher||+166,000||+118,000||3.8%|
The unemployment rate by age group shows the challenges faced by the youth of America.
|Age Group||Unemployment Rate|
|55 and over||5.4%|
The alternative measures of unemployment all rose except for the U5 rate.
|Lost their job||54.6%|
|Left their job||7.5%|
|Re-entered the labor force||27.2%|
|New entrant into the labor force||10.7%|
There was positive news on the salary front. Workers were able to stay slightly ahead of the inflation rate in October.
- Average hourly earnings rose.2% for the month and 2.2% year over year
- Overtime was steady at 3.4 hours
- Average work week was unchanged at 34.4 hours
Analyzing the data shows the following breakdown of where jobs were created:
|Mining & Logging||5,000|
|Transportation & Warehousing||0|
|Professional & Business Services||44,000|
|Education & Healthcare||17,500|
|Leisure & Hospitality||53,000|
Today’s employment rate was truly a mixed bag. From a Federal Reserve perspective, they have indicated that they are incorporating two components of the employment report in their group of economic indicators: unemployment rate and labor participation rate. Those data points do not currently support reducing the level of monetary stimulus (i.e. Quantitative Easing). The bullish economic camp will argue that today’s Establishment Survey proves that the economy is gaining momentum. The bearish economic camp will argue that today’s Household Survey proves that the economy is struggling. Time will tell which camp has the economic picture correct. I continue to believe that until Congress stops “kicking the can down the road” and implements some longer term solutions to our debt and deficit problem, 1‐3% will be the most likely range for economic growth. Today’s employment report will most likely create additional volatility in the investment markets. Given the investment markets’ previous behavior, they will probably focus on the Establishment Survey and begin to worry that a reduction in Quantitative Easing is imminent, even though the Federal Reserve has reiterated that their decision is data dependent.