Well, happy 2023 to all my readers. We’re back for another year — the 19th year of this blog’s existence. All observers are waiting for signs that rising U.S. interest rates are slowing the U.S. economy, a prevailing logic used to justify a regressive policy shift. Data so far suggest that inflationary pressures are fading due to factors other than interest rate changes, which appear to do little more than redistribute income from the poor to the rich. The latest labor market data released by the Bureau of Labor Statistics supports this view. Last Friday (January 6, 2022), the U.S. Bureau of Labor Statistics (BLS) released the latest labor market data—— Employment Situation Summary – December 2022 – This indicates continued job growth, rising participation rates and falling unemployment. These bode well for American workers. Moreover, modest nominal wage growth is now providing real wage growth – another benign sign, as inflation is receding. The latest data is certainly at odds with the Fed-type narrative. But who should be surprised by that.
Overview December 2022 (seasonally adjusted):
- Employment increased by 223,000, a slight slowdown from the previous three months.
- The Labor Force Survey total employment increased by a net 0.717K (0.45%) – a rebound after two straight months of declines.
- The net increase in the labor force was 439,000 (0.27%).
- The participation rate rose 0.1 percentage point to 62.3%.
- The measure of total unemployed fell by 278,000 to 5.722 million.
- The official unemployment rate fell 0.1 percentage point to 3.5%.
- The broad measure of labor underutilization (U6) fell 0.2 percentage points to 6.5%.
- The employment-to-population ratio rose 0.2 percentage points to 60.1% (still well below the May 2020 peak of 61.2).
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 nonfarm payrolls rose by 223,000 in December. Significant job growth occurred in leisure and hospitality, healthcare, construction and social assistance. Employment will increase by 4.5 million in 2022 (an average of 375,000 per month), down from 6.7 million in 2021 (an average of 562,000 per month…
Employment in the leisure and hospitality industry rose by 67,000 in December … employment in the sector remains below pre-pandemic levels in February 2020
932,000, or 5.5%.Health Care Employment Increased by 55,000 in December…Health Care Job Growth Averages 49,000 Monthly in 2022, Much Faster Than 2021
An average increase of 9,000 per month.Construction payrolls rose by 28,000 in December… Construction payrolls will rise by an average of 19,000 per month in 2022, not far from the 16,000 average per month in 2021.
Social assistance added 20,000 jobs in December… Social assistance jobs will grow by an average of 17,000 per month through 2022, compared to an average of 13,000 per month in 2021.
Employment in other services continued its upward trend in December (+14,000)… Employment in other services was 174,000, or 2.9%, below its February 2020 level.
Mining employment rose by 4,000 in December… Mining employment has risen by 104,000 since a recent low in February 2021.
Employment in the retail sector was little changed in December (+9,000). Retail job growth averages 16,000 per month through 2022, less than half the 35,000 average monthly gain in 2021.
Manufacturing employment was little changed over the month (+8,000)…In 2022, manufacturing added an average of 32,000 jobs per month, not far off from the average monthly gain of 30,000 in 2021.
Employment in transportation and warehousing was little changed in December (+5,000)…In 2022, average employment growth in transportation and warehousing (+17,000) was about half of the average job growth in 2021 (+36,000).
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 from January to December 2020 were excluded.
The labor market is definitely getting softer as we move into 2023.
But there’s no clear sign of a crash or a significant slowdown — more of an adjustment to a wild 2021 recovery.
Furthermore, as mentioned above, the recovery since the pandemic unemployment has not 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 final average for 2022 is 375,000 and falls rapidly in the second half of the year.
Labor Force Survey Data – Employment Rise, More Working-Age People Finding Jobs
Seasonally adjusted data for December 2022 shows:
1. Labor Force Survey Total Employment Net Increase of 0.717K (0.45%) – a rebound after two straight months of decline.
2. The net increase of the labor force was 439,000 (0.27%).
3. The participation rate increased by 0.1 percentage points to 62.3%.
4. As a result (in accounting terms), the total number of unemployed fell by 278,000 to 5.722 million, and the official unemployment rate fell by 0.1 percentage points to 3.5%.
When we look at these numbers, it’s hard to argue that the labor market is in decline.
The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) between May and December 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 December 2022.
In December 2022, the rate increased by 0.2 percentage points to 60.1%.
The pre-pandemic peak level was 61.1% in May 2020.
But more people of working age are working now than in early 2022.
Unemployment and Underutilization Trends
The U.S. Bureau of Labor Statistics states:
The unemployment rate edged down to 3.5% in December and has remained in a narrow range of 3.5% to 3.7% since March. Unemployment dips slightly to 5.7 million in December…
The number of long-term unemployed (those who have been unemployed for 27 weeks or more) fell by 146,000 to 1.1 million in December. The measure was down from 2 million a year earlier. Long-term unemployed make up 18.5% of all unemployed…
The number of people working part-time for economic reasons was 3.9 million, little changed in December…
The number of people not in the labor force currently wanting to work fell by 352,000 to 5.2 million in December, not far from the February 2020 level of 5.1 million. …
Unemployment fell in December because employment growth was stronger than labor force growth (given the increase in the participation rate).
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 unemployment, 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 December 2022, the U6 indicator was 6.5%, a decrease of 0.2 percentage points.
What does a salary do in the US?
Therefore, the jobs data does not suggest that rate hikes have hurt U.S. job creation.
What about wage growth?
The U.S. Bureau of Labor Statistics reports:
Average hourly earnings for all private nonfarm employees rose 9 cents, or 0.3%, to $32.82 in December. Average hourly earnings have increased 4.6% over the past 12 months. Average hourly earnings for private-sector production and nonsupervisory employees rose 6 cents, or 0.2%, to $28.07 in December.
These are modest increases.
However, the latest- Summary of BLS Actual Benefits (Published December 13, 2022) – Tell us:
Real average hourly earnings for all employees rose 0.5 percent from October to November, seasonally adjusted.  … This result comes from
Average hourly earnings rose 0.6%, combined with a 0.1% increase in the Consumer Price Index (CPI-U) for all urban consumers…From November 2021 to November 2022, seasonally adjusted real average hourly earnings fell 1.9%.
Overall, wage growth failed to catch up and real wages fell during the 12-month period of rising inflationary pressures. But wage growth is now stronger as inflation subsides, with real wages rising in December.
The table below shows the change in nominal Average Hourly Earnings (AHE) by industry and inflation-adjusted AHE by industry in December 2022 (note that we are using November’s CPI for adjustments – this is the latest data).
There is considerable variation across sectors, with some sectors still unable to translate nominal wage increases into real results.
The graph below shows the annual growth rate in real average hourly earnings from 2008 to September 2022.
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 January 4, 2023) – states:
The number of job openings was little changed at 10.5 million on the last working day of November…For the month, hiring and total departures were little changed at 6.1 million and 5.9 million respectively. Little changed in departures, layoffs (4.2 million) and layoffs and layoffs (1.4 million)…
In November, the number of quitters and the quitting rate were little changed at 4.2 million and 2.7 percent, respectively.
As a result, the U.S. labor market is still not contracting at any significant rate that would depress the quitting rate.
in conclusion
In December 2022, the U.S. labor market resisted the dovishness we had seen in previous months and provided job growth and a higher working-age share.
Participation rates are rising and unemployment is falling — two benign signs.
There is also no underlying wage pressure as inflationary pressures recede.
Enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
