Last Friday (April 7, 2023), the U.S. Bureau of Labor Statistics (BLS) released its latest labor market data—— Employment Situation Summary – March 2023 – This points to continued employment growth, a rise in the participation rate and a small decline in the unemployment rate. Good blend of events. We have been looking for an inflection point in the US labor market after months of rate hikes. But it’s not here yet. In fact, it’s moving in the opposite direction from what the Fed’s “models” envisioned, which it uses to justify its rate decisions. Guess which is wrong? Most aggregates remained stable, and net employment change in March remained relatively strong for the pre-pandemic period. Real wages continue to fall in the face of slowing inflation. Overall, the U.S. labor market is stable and does not appear to be contracting amid Fed rate hikes.
Overview March 2023 (seasonally adjusted):
- Employment rose by 236,000 — a second month of slower gains.
- The labor force survey showed a net increase of 577,000 total employment (0.36%).
- The net increase of the labor force was 480,000 (0.29%).
- The participation rate rose 0.1 percentage point to 62.6%.
- The measure of total unemployed fell by 97,000 to 5.839 million.
- The official unemployment rate rose 0.1 percentage point to 3.6%.
- The broad measure of labor underutilization (U6) fell 0.1 percentage point to 6.7%.
- The employment-to-population ratio rose 0.2 percentage points to 60.4% (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.
Salary Employment Trends
The U.S. Bureau of Labor Statistics states:
Total non-farm payrolls rose by 236,000 in March, compared with the 334,000 monthly average for the previous six months. Employment in leisure and hospitality, government, professional and business services, and health care continued to trend upward in March…
The leisure and hospitality industry added 72,000 jobs in March, below the average monthly gain of 95,000 in the previous six months…Leisure and hospitality employment was 368,000 below its pre-pandemic level in February 2020, or 2.2%.
Government payrolls rose by 47,000 in March, matching the monthly average for the previous six months. Overall, government sector employment was 314,000, or 1.4%, below its February 2020 level.
Employment in professional and business services continued its upward trend in March (+39,000), in line with the average monthly growth rate for the preceding six months (+34,000). …
Health care added 34,000 jobs this month, down from an average of 54,000 per month in the previous six months…
Social assistance employment continued its upward trend in March (+17,000), in line with the average monthly increase in the previous six months (+22,000).
Employment in the transportation and warehousing sector was little changed (+10,000) in March…There has been little net change in employment in the transportation and warehousing sector in recent months.
Retail employment was little changed in March (-15,000)… Net retail employment was little changed for the year.
Employment in other major industries was little changed in a month…
All in all, there are no signs of an imminent recession.
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 January 2020 were excluded as outliers.
However, some industries have still not regained the jobs lost in 2020-21.
The graph below shows the same data in a different way – in this case, the graph shows the average monthly wage employment net change (real) for the calendar year 2005 through 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 | 399 |
| 2023 (present) | 345 |
Labor Force Survey Data – Employment and Participation Rise, Unemployment Rate Falls
Seasonally adjusted data for March 2023 shows:
1. Labor force survey total employment net increase of 577,000 (0.36%) – stronger.
2. The net increase of the labor force was 480,000 (0.29%).
3. The participation rate increased by 0.1 percentage points to 62.6%.
4. As a result (in accounting terms), the total number of unemployed fell by 97,000 to 5.839 million and the official unemployment rate fell by 0.1 percentage points to 3.5%.
Totals over the past two months have fallen back to more normal levels after a “boom” in January.
So far there are no signs of recession.
The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) between May and January 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 chart below shows the US employed population from January 1950 to March 2023.
In March 2023, the ratio increased by 0.2 percentage points to 60.4%. Signs of strengthening labor market.
The pre-pandemic peak level was 61.1% in May 2020.
Unemployment and Underutilization Trends
The U.S. Bureau of Labor Statistics states:
The 3.5% unemployment rate and 5.8 million jobless claims were little changed in March. There has been little net change in these measures since the start of 2022…
The number of long-term unemployed (those who have been out of work for 27 weeks or more) was little changed at 1.1 million in March. These people make up 18.9 percent of all unemployed…
The number of people working part-time for economic reasons was little changed at 4.1 million in March. 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. …
So it’s a fairly static picture.
The unemployment rate did fall in March, as job growth outpaced labor force growth even as the participation rate rose. This is a good sign.
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% (January 2019).
In March 2023, the U6 indicator was 6.7%, down 0.1 percentage point due to a fall in the unemployment rate, while other determinants remained largely unchanged. It is still 0.2 percentage points above the December 2022 level.
How is wage growth in the US?
The U.S. Bureau of Labor Statistics reports:
Average hourly earnings for all private nonfarm employees rose 9 cents, or 0.3%, to $33.18 in March. Average hourly earnings have increased 4.2% over the past 12 months. Average hourly earnings for private-sector production and nonsupervisory employees rose 9 cents, or 0.3%, to $28.50 in March.
These increases are modest relative to current inflation rates.
However, the latest- Summary of BLS Actual Benefits (posted March 14, 2023) – Tell us:
Real average hourly earnings for all employees fell 0.1% from January to February…This result stemmed from a 0.2% increase in average hourly earnings and a 0.4% increase in the Consumer Price Index (CPI-U) for consumers in all cities…
Real average weekly earnings fell 0.4% over the month due to changes in real average hourly earnings and a 0.3% decrease in average weekly hours worked.
From February 2022 to February 2023, real average hourly earnings fell 1.3% on a seasonally adjusted basis. The change in real average hourly earnings, combined with the 0.6 percent decline in average weekly hours worked, resulted in a 1.9 percent decline in real average weekly earnings. period.
Overall, while inflationary pressures are moderating, nominal wage growth remains lagging, with real wages continuing to fall as a result.
The table below shows the change in nominal Average Hourly Earnings (AHE) by industry and inflation-adjusted AHE by industry in March 2023 (note that we are using the February CPI for the adjustment – this is the latest data).
There was considerable variation across sectors, with most sectors still reporting lower real wage results.
The chart below shows the annual growth rate of real average hourly earnings from 2008 to March 2023.
Real pay cuts are slowing.
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 April 4, 2023) – states:
The number of job vacancies fell to 9.9 million on the last working day of February… Throughout the month, hiring and total departures were little changed at 6.2 million and 5.8 million, respectively. Among separations, layoffs (4 million) rose slightly, while layoffs and layoffs (1.5 million) fell…
The number of quitters edged up to 4 million (+146,000) in February, an almost unchanged growth rate of 2.6%.
If there is a recession in the U.S. labor market, the resignation rate will fall.
in conclusion
In March 2023, the latest US labor market data showed no signs of an imminent recession.
Net employment changes in March remained relatively strong compared with the pre-pandemic period.
The unemployment rate fell because job growth outpaced supply-side growth, even as higher participation rates brought more people into the labor force.
Real wages continue to fall in the face of slowing inflation.
Overall, the U.S. labor market is stable and does not appear to be contracting amid Fed rate hikes.
Enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
