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The U.S. Labor Market Is a Holding Pattern – Falling But Slowly – Bill Mitchell – Modern Monetary Theory


Last Friday (December 2, 2022), the U.S. Bureau of Labor Statistics (BLS) released the latest labor market data—— Employment Situation Summary – November 2022 – This indicated that the U.S. labor market showed signs of further slowing, with a net gain of 263,000 jobs. Labor force indicators showed that employment and labor force growth turned negative as the participation rate edged down. The result has been that the official unemployment rate has remained largely unchanged – both the demand and supply side of the ratio have fallen. The steady exit rate suggests that the U.S. labor market is in a stagnation mode—slowing soft but inconsistent with a Fed-type narrative. Nor is there currently underlying wage pressure to drive any further inflation spikes. Wage growth appears to be counteracting inflation rather than boosting it. Wage growth appears to be counteracting inflation rather than boosting it. The argument that wage pressures are pushing up inflation doesn’t hold water given the data.

November 2022 overview (seasonally adjusted):

  • Employment rose by 263,000 — almost unchanged from the previous month.
  • Total employment in the Labor Force Survey showed a net decrease of 138,000 (-0.11%).
  • The net decrease in the labor force was 186,000 (0.11%).
  • The employment-to-population ratio fell 0.1 percentage point to 59.9% (now well below the May 2020 peak of 61.2).
  • The measure of total unemployed fell by 48,000 to 6.011 million.
  • The official unemployment rate was unchanged at 3.7%.
  • The participation rate fell 1 percentage point to 62.1%.
  • The broad measure of labor underutilization (U6) fell 0.1 percentage point to 6.7%.

For those confused about the difference between wage (institutional) data and household survey data, you should read this blog post – The U.S. labor market is in bad shape – I explain the differences in detail here.

Some months have very small differences, while others have large differences.

The difference this month is quite large.

Salary Employment Trends

The U.S. Bureau of Labor Statistics states:

Total non-farm payrolls rose by 263,000 in November, roughly in line with the average gain for the previous three months (+282,000).

The leisure and hospitality industry added 88,000 jobs in November … 980,000, or 5.8%, below the pre-pandemic level in February 2020.

Health care employment increased by 45,000 in November…Health care employment will increase by an average of 47,000 per month through 2022, well above the 9,000 average monthly gain in 2021.

The government sector added 42,000 jobs in November, mainly in local government (+32,000)… Since February 2020, government sector employment has decreased by 461,000, or 2.0%.

Employment in other services rose by 24,000 in November … 186,000, or 3.1%, below February 2020 levels.

Social assistance employment rose by 23,000 in November and has returned to February 2020 levels…

Construction payrolls continue to trend upward in November (+20,000)… Construction has added an average of 19,000 jobs per month so far this year, not far off the 2021 average of 16,000 per month.

Information employment rose by 19,000 in November … an average of 14,000 per month so far this year, unchanged from the 16,000 per month average in 2021.

Manufacturing employment continued its upward trend in November (+14,000). Job growth has averaged 34,000 per month so far this year, not far off the 30,000 average per month in 2021.

Employment in financial activities continued its upward trend in November (+14,000)…so far this year, an average increase of 12,000 per month, on par with 2021.

Retail payrolls fell by 30,000 in November … and are down 62,000 since August.

Employment in transportation and warehousing fell by 15,000 in November and is down 38,000 since July…

Professional and business services monthly job growth averages 58,000 through 2022, down from 94,000 per month in 2022
2021.

Employment in mining and wholesale trade was little changed over the month.

The first graph shows the monthly change in 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 November 2020 were excluded as outliers.

As noted above, the recovery since the pandemic job losses hasn’t even crossed industries.

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 2021.

The red marks on the columns are the results for the current month.

The final 2019 average was 164,000.

The final 2020 average was -774K.

The final 2021 average is 562,000.

The 2022 average so far is 392,000 and is declining rapidly.

Labor force survey data – Employment falls for second straight month

Seasonally adjusted data for November 2022 shows:

1. Total employment in the labor force survey showed a net decrease of 138,000 (-0.11%) for the second consecutive month.

2. The net decrease in the labor force was 186,000 (0.11%).

3. The participation rate fell 0.1 percentage point to 62.1%.

4. As a result (in accounting terms), the total measured unemployed fell by 48,000 to 6.011 million, leaving the official unemployment rate unchanged at 3.7% (after rounding).

Taken together, these results suggest that the labor market is slowly declining.

The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) between May and November 2020 that distort the current period relative to the pre-pandemic period.

The employment-to-population ratio is a good indicator of the strength of the labor market because the denominator, population, is not particularly sensitive to cycles (unlike the labor force), so movements are relatively clear.

The graph below shows the US employed population from January 1950 to November 2022.

In November 2022, the rate decreased by 0.1 percentage point to 59.9%.

The pre-pandemic peak level was 61.1% in May 2020.

Unemployment and Underutilization Trends

The U.S. Bureau of Labor Statistics states:

The unemployment rate was unchanged at 3.7% in November and has been in a tight range of 3.5% to 3.7% since March…

The number of long-term unemployed (those who have been out of work for 27 weeks or more) was little changed at 1.2 million in November. Long-term unemployed persons accounted for 20.6% of all unemployed persons. …

The number of people working part-time for economic reasons was little changed at 3.7 million in November. These people who would have preferred to work full-time are working part-time because their hours have been reduced or they cannot find full-time employment. …

Unemployment rose in November due to:

1. Negative employment growth

2. The labor force has contracted slightly, and the participation rate has declined slightly.

3. Employment contracted more than the labor force.

The first graph shows the official unemployment rate since January 1994.

The official unemployment rate is narrow Measures of labor waste, which imply strict comparisons with the 1960s, for example, in terms of tightness in 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 unemployed, plus all marginalized workers plus total number of people working part-time for economic reasons, as a percentage of all civilian labor force plus all marginalized workers.

As such, it is the broadest quantitative measure of labor underutilization published by the BLS.

Pre-COVID, U6 was 6.8% (Dec 2019).

In November 2022, the U6 indicator was 6.7%, a decrease of 0.1 percentage points.

What does a salary do in the US?

With inflation now soaring and the Fed pretending that there is a major wage problem that needs to be addressed through a massive rise in unemployment, strong nominal wage growth is expected to push the price level higher.

The U.S. Bureau of Labor Statistics reports:

Average hourly earnings for all private nonfarm employees rose 18 cents, or 0.6%, to $32.82 in November. Average hourly earnings have increased 5.1% over the past 12 months. Average hourly earnings for private-sector production and nonsupervisory employees rose 19 cents, or 0.7%, to $28.10 in November.

However, the latest- Summary of BLS Actual Benefits (Published November 10, 2022) – Tell us:

Real average hourly earnings for all employees fell 0.1% from September to October…This result stems from
Average hourly earnings rose 0.4%, plus the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4%.…

From October 2021 to October 2022, seasonally adjusted real average hourly earnings fell 2.8%.

The graph below shows the annual growth rate in real average hourly earnings from 2008 to September 2022.

As a result, nominal wages have picked up, but not enough to defend real wages, and not enough to push inflation up even further.

Another indicator that tells us whether the labor market is shifting in favor of workers is the turnover rate.

The latest BLS data — Job Openings and Labor Turnover Summary (Published November 30, 2022) – Indicates that:

…hiring and total separations were little changed at 6.0 million and 5.7 million, respectively. Little changed in departures, layoffs (4 million) and layoffs and layoffs (1.4 million)…

A resignation is usually a voluntary departure offered by an employee.Therefore, smoking cessation rates can be used as a measure of
A worker’s willingness or ability to leave…

In October, the number of quitters and the quitting rate were little changed at 4 million and 2.6 percent, respectively.

As a result, the U.S. labor market is at a standstill—slowly laying off workers, but not fast enough to reduce resignation rates.

in conclusion

In November 2022, the U.S. labor market showed signs of further slowing, with a net gain of 263,000 jobs.

The U.S. labor market is at a standstill—slowly laying off workers, but not fast enough to bring down the resignation rate.

A slowing economy leads to lower participation rates, which helps lower unemployment.

It’s a strange state.

Nor is there currently underlying wage pressure to drive any further inflation spikes. Wage growth appears to be counteracting inflation rather than boosting it.

Enough for today!

(c) Copyright 2022 William Mitchell. all rights reserved.



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