Last Friday (September 1, 2023), the U.S. Bureau of Labor Statistics (BLS) released the latest labor market data—— Employment Summary – August 2023 – Data showed that employment rose by 187,000, but the unemployment rate is now starting to rise (by 0.3 percentage points) to 3.8%. Is this the turning point? Given the surprisingly large increase in the participation rate, which is almost entirely attributable to rising unemployment and unemployment, I’m very unsure about it. Most other aggregates are relatively stable, which is why I express uncertainty in my assessment. However, there is no sign of a recession, or that the Fed’s misguided rate hikes are causing unemployment to rise. It would be hard for Powell to take credit for the rise in participation, unless he argues that he has created such desperation that people who would not normally work are looking for work. stretch!
August 2023 Overview (seasonally adjusted):
- Payroll employment rose by 187,000 (up from 157,000 in the previous month).
- Total employment in the Labor Force Survey showed a net increase of 222,000 (0.17%).
- The net increase in the labor force of 736,000 (0.44%) – which I suspect will be revised down next month – is a very large increase.
- The participation rate rose 0.2 percentage points to 62.8%.
- Total measured unemployment rose by 514,000 to 6.355 million — all due to higher participation rates.
- The official unemployment rate rose 0.3 percentage point to 3.8%.
- The broad measure of labor underutilization (U6) rose 0.4 percentage points to 7.1%, mainly due to higher unemployment.
- The employment-to-population ratio was unchanged at 60.4% (still well below the June 2020 peak of 61.2).
For those who are confused about the difference between wage (institutional) data and household survey data, you should read this blog post – The state of the US labor market is worrying – I explained the differences in detail.
Some months have smaller differences, while others have larger differences.
Salary Employment Trends
The Bureau of Labor Statistics states:
Nonfarm payrolls rose by 187,000 in August, below the 271,000 monthly average for the prior 12 months…
The health care industry added 71,000 jobs in August, following a similar increase in the previous month. …
Employment in the leisure and hospitality sector continued its upward trend in August (+40,000). The industry has added an average of 61,000 jobs per month over the past 12 months. Employment in the sector remained 290,000, or 1.7%, below its pre-pandemic level in February 2020.
Social assistance employment rose by 26,000 in August, in line with the prior 12-month average (+22,000)…
Construction employment continued its upward trend in August (+22,000), in line with the average monthly gain over the previous 12 months (+17,000)…
The transportation and warehousing industry lost 34,000 jobs in August… There has been little net change in employment in the transportation and warehousing industry over the past 12 months.
Employment in professional and business services was little changed in August (+19,000), and there has been little net change since May…
Information employment was little changed in August (-15,000).Employment in other major industries was little changed this month…
All told, 472,000 net wage jobs were created in January 2023, but the shift has declined over the past 3 months.
While there are no signs of a looming recession, job creation on average per month is down significantly from 2022 on a net basis.
The first graph shows the monthly change in wage employment (in thousands, expressed as a 3-month moving average to remove monthly noise). The red line is the annual average. Observations between January 2020 and January 2020 were excluded as outliers.
You can see that after the initial COVID-19 restrictions, there was a surge in behaviour, and a marked slowdown over the past two years, back to pre-pandemic.
The next graph shows the same data in a different way – in this case, the graph shows the average monthly net change in wage employment (real) over the calendar years 2005 to 2023.
The red marks on the columns are the results for the current month.
Average monthly change – 2019-2023 (000s)
| Year | Average Monthly Employment Change (000s) |
| 2019 | 163 |
| 2020 | -774 |
| 2021 | 606 |
| 2022 | Chapter 399 |
| 2023 (present) | 236 |
Labor force survey data – Employment rises by 222K, but unemployment rises on higher participation
Seasonally adjusted data for August 2023 shows:
1. Total employment in the Labor Force Survey decreased by 222,000 (0.14%) – a slight decrease from the previous month.
2. The labor force increased significantly, with a net increase of 736,000 (0.44%).
3. The participation rate increased by 0.2 percentage points to 62.8%.
4. As a result (from an accounting perspective), the total measured unemployed increased by 514,000 to 6.355 million, and the official unemployment rate increased by 0.3 percentage points to 3.8%.
Whether the variation in participation is a sampling bias remains to be seen. We’ll see if changes are made next month.
The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) between August 2020 and January 2020 that distort the current period relative to pre-pandemic situation of the period.
The employment-to-population ratio is a good indicator of the strength of the labor market because the denominator, population, is not particularly cycle-sensitive (unlike the labor force), so movements are relatively well-defined.
The graph below shows the US employed population from January 1950 to August 2023.
In August 2023, the rate remains unchanged at 60.4%.
The peak in August 2020 before the outbreak was 61.1%.
Trends in unemployment and underutilization
The U.S. Bureau of Labor Statistics states:
The unemployment rate rose 0.3 percentage points to 3.8% in August, and the number of unemployed people increased by 514,000 to 6.4 million. Both indicators were little changed from a year earlier, when the unemployment rate was 3.7% and 6 million people were out of work. …
In August, the number of people unemployed for less than five weeks was 2.2 million, and the number of long-term unemployed (unemployed for 27 weeks or more) was 1.3 million, both rising slightly. Long-term unemployed persons accounted for 20.3% of all unemployed persons. …
The number of people working part-time for economic reasons was 4.2 million in August, little changed. These are individuals who would have preferred to work full-time but have taken part-time work because of reduced hours or the inability to find full-time employment.
So the main shift is a surge in labor force participation leading to higher unemployment.
Curiously, the employment-to-population ratio hasn’t changed at all. Employment thus keeps pace with underlying population growth, but with a higher proportion of the working-age population seeking work.
The first graph shows the official unemployment rate since January 1994.
official unemployment rate narrow Measures of labor waste, which means that strict comparisons to the 1960s, such as the tightness of the labor market, must take into account broader measures of labor underutilization.
The figure below shows the BLS metric U6, which is defined as:
Total unemployment plus all marginally dependent workers plus total employment part-time for economic reasons as a percentage of all civilian labor force plus all marginally dependent workers.
As such, this is the broadest quantification of labor underutilization published by the Bureau of Labor Statistics.
Before the outbreak of the new crown epidemic, the proportion of U6 was 6.8% (January 2019).
In August 2023, the U6 index was 7.1%, up 0.4 percentage points – mainly due to rising unemployment.
How did increased engagement impact monthly results?
The table below shows the effect of rising participation rates on the unemployment rate.
We can conclude that if the participation rate does not rise by 0.2 percentage points, the unemployment rate will remain unchanged.
Monthly employment change (222,000) just outpaced labor force growth (200,200) from underlying population growth.
However, the increase in the participation rate added 534,500 workers who needed to find work, leading to a 514,000 increase in the unemployment rate.
I suspect it’s a statistical bias, but we’ll see if there’s a revision next month.
How is wage growth in the US?
The U.S. Bureau of Labor Statistics reports:
Average hourly earnings for all private nonfarm payrolls rose 8 cents, or 0.2%, to $33.82 in August. Average hourly earnings have increased 4.3% over the past 12 months. Average hourly earnings for production and nonmanagement workers in the private sector rose 6 cents, or 0.2%, to $29.00 in August.
Newest – U.S. Bureau of Labor Statistics (BLS) Real Earnings Summary – July 2023 (Published 10 August 2023) – Tell us:
On a seasonally adjusted basis, real average hourly earnings for all employees rose 0.3% from June to July…the result came on the heels of a 0.4% increase
Average hourly earnings rose 0.2 percent, and the consumer price index for all urban consumers (CPI-U) rose 0.2 percent.Real average weekly earnings were little changed this month…
From July 2022 to July 2023, real average hourly earnings increased 1.1% on a seasonally adjusted basis.
The rise in nominal wages is leading to a small rise in real wages as inflation moderates.
The table below shows the change in nominal Average Hourly Earnings (AHE) by industry and inflation-adjusted AHE by industry in August 2023 (note that we are using July CPI (the latest available) for the adjustment) .
However, some industries still did not enjoy the modest increase in real wages that others did.
The chart below shows the annual growth rate of real average hourly earnings from 2008 to August 2023.
Another indicator that tells us whether the labor market is turning in favor of workers is the quitting rate.
The latest data from the U.S. Bureau of Labor Statistics (BLS) – Summary of Job Openings and Labor Turnover (Published 29 August 2023) – states that:
The number of job vacancies edged down to 8.8 million on the last working day of July… Total hiring and departures changed during the month
5.8 million and 5.5 million respectively. On departures, resignations (3.5 million) decreased, while layoffs and layoffs (1.6 million) were little changed. …The number of quitters fell to 3.5 million (-253,000) in July, while the quit rate was little changed at 2.3%.
Thus, by July 2023, the resignation rate continues to decline and job vacancies begin to shrink.
This suggests that a turning point may have been reached.
in conclusion
August 2023, the latest U.S. labor market data suggest that, despite uncertainty, the U.S. labor market may finally have reached a tipping point given the surprisingly large increase in participation rates (almost entirely due to rising unemployment and unemployment) .
Most other aggregates are relatively stable, which is why I express uncertainty in my assessment.
Enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
