Wednesday, June 25, 2014

First Quarter Growth Revised from -1% to -2.9%?

The government released its final estimate of first quarter growth and it showed a decline of nearly 3% compared to an initial estimate of +0.1% and second estimate of -1%.  Why the decline?  Consumption grew less than previously estimated, +1% instead of +3.1%.  What happened?  In a previous post, I noted how spending on health care services rose by nearly 10% in the first quarter, adding a record 1.1% to economic growth (most since records started being kept in 1959).  According to the latest estimate, spending on health care services actually declined by 1.4%.  Instead of being historic in terms of the size of the increase, it is now historic in terms of the size of the decrease (the largest decline in health care spending since the first quarter of 1982).  So instead of adding 1.1% to growth, it subtracted about 0.2% from growth.  Given the size of the US economy, some revisions are to be expected (as more data becomes available, estimates can be made more accurate).  However, that doesn't normally result in such a large revision.  The near-record growth in health care spending initially reported was attributed to the introduction of Obamacare.  Details and explanation are not readily available, but it seems that something went seriously wrong in the early estimates of the impact of Obamacare on spending on health care.

Friday, June 6, 2014

May Jobs Report

Employment in the US hits a new record!  OK, though this is true, the news isn't great (but it's pretty good).  After looking through the report, there was nothing spectacular or gruesome to report.  The number of jobs added (217,000) was solid and was spread among different industries.  The unemployment rate remained at 6.3% while the participation rate remained unchanged at a 35-year low (62.8%), which was disappointing. Rather than get into the details of the monthly changes (April to May), I think it's more interesting to see what has happened from the previous record level of employment (January 2008) to the low in February 2010 to the new record level reached in May 2014.

Here's a table with the winners and losers over the last 6+ years:

Net Change
Retail Trade
Profess. & Tech Services
Education (private)
Health Care
Social Assistance
Food/Drinking Places
Fed Govt, not post office
Post Office
State/Local Education
State/Local Govt (not educ)

You can read it for yourself, but some of the things that stand out to me are:

During the recession (Jan 2008-Feb 2010): the entire net loss of jobs was in the private sector with the federal government (outside the post office) adding more than 200,000 jobs.  The largest job losses took place in manufacturing and construction while health care added more than half a million jobs.

During the recovery (Feb 2010-May 2014): The private sector recovered all the jobs lost and more while the government  incurred the jobs losses.  The biggest winner has been food & drinking places, adding 1.3 million jobs followed by health (+1 million) and retail trade (+925,000).

Net Change (Jan 2008-May 2014): The economy has added nearly 100,000 jobs since the start of 2008 (617,000 in the private sector, loss of half a million government jobs).  The winners were health care (up more than 1.5 million) while food/drinking places added almost 1 million.  though they have recovered somewhat, employment in manufacturing and construction combined has declined by 3.1 million.  Given the weak economy, it's no surprise that social assistance employment has risen by more than 500,000 since the start of the recession.

Given the net employment gains and losses, construction employment has declined from 5.4% of total employment at the start of the recession to 4.3% otday while manufacturing has declined from 9.9% to 8.7%.  Meanwhile, health care has risen from 9.5% to 10.6% while food/drinking places rose from 7% to 7.7%.  Just a few more stats before we finish.  Full-time employment fell from nearly 83% at the start of the recession to 80% in early 2010 before rebounding to 81.3% (so part-time employment rose from 17% to 18.7% over that same period).  The percent of people self-employed declined from 7% to 6.2% with the entire decline taking place during the recovery phase.

What are the key takeaways?  Though overall employment hasn't changed much during the last 76 months, its composition has changed significantly.  The goods sector (manufacturing/construction) has incurred a substantial decline while food/drinking places has experienced a very strong recovery.  Meanwhile, health care continues its long-term growth, though at a slower pace in recent years.

Thursday, May 29, 2014

Revisions to First Quarter GDP

The headline number for this morning's GDP report was that the economy shrank by 1% (compared to an initial estimate of growth of 0.1%).  What was responsible for the revision?  Almost the entire revision was due to a decline in inventory investment, which subtracted 1.6% from economic growth compared to an initial estimate of 0.6%.  So final sales (growth excluding inventories) declined from 0.7% to 0.6%.  This is actually good news for future growth since companies have less inventory on hand, increases in demand are more likely to result in increases in production.  Most of the other details of the report are similar to initial estimates (see previous post) - positives include a record contribution from healthcare due to Obamacare and a sizeable contribution from utilities due to the harsh winter while minuses include weak construction (likely due to the harsh winter) and weakness in business investment and exports (some payback from unsustainably strong exports in late 2013).

Wednesday, May 28, 2014

Which Major Metro Area Leads the Nation in the Rate of Job Creation?

Which major metropolitan area leads the nation in terms of the rate of job creation?  Orlando, Florida.  As noted in a previous blog post, this isn't a surprise, but became official with the release of the April employment data for metropolitan areas this morning.  From April 2013 to April 2014, employment rose by 4.5% in metro Orlando, a higher rate than any other major metropolitan area (private sector job growth was 4.9%).  How am I defining major metropolitan area?  Though there's no official definition, reasonable thresholds are 250,000 or 500,000 workers.  Orlando is actually #1 for any metro area with more than 135,000 workers (it's #3 when considering all those with more than 100,000; behind College Station, TX and Naples, FL).

You may be wondering where Florida ranks compared to other states (since it has two of the top three fastest growing job markets in the nation when considering areas with 100,000+ workers).  Florida is tied for #3 with Texas (North Dakota is #1 at 5.1% followed by Nevada at 3.7%).  By the way, Orlando added more jobs in the last year than either Nevada or North Dakota.

Friday, May 16, 2014

April Jobs Report: Florida and Orlando

The latest report on the state and local economy was released this morning and it continued to indicate that a real recovery is underway.  The headline numbers include a net gain of 34,000 jobs statewide in April (+0.4%) and up nearly 247,000 over the last 12 months (+3.3%) while the unemployment rate fell to 6.2%.  Regular readers of this blog already know what's coming up next - what about the effect of the participation rate?  This is where I'm supposed to say that the participation rate fell and there was no real decline in the unemployment rate.  However ... the participation rate has started to increase recently and is now aapproaching 60.7% (compared to a low of about 60% in late 2013 and 60.4% one year ago.  If the participation rate had remained constant over the last year, the unemployment rate would be even lower.  Of course the recent increase just brings it back to where it was in the second half of 2011.  Prior to the recession (Dec 2007), the participation rate stood at 64.2%.  Given demographics trends, it shouldn't return to that rate.  The recent bounce in the participation rate supports the idea that a significant portion of the decline was cyclical (people not looking for work due to a poor job market; as the job market improves, more people are looking for jobs).

Which industries are leading the rebound?  Food/Accomodation services added thre most jobs in April and have risen 5.6% since April 2013.  Professional/Business services came in second for the month and have increased by 5.1% in the last year, led by employment services, which have risen by 10% and professional/technical services (+4.6%).  Construction continued its recovery, adding nearly 5000 jobs last month and almost 44,000 over thre last year (+12.1%).

Given the strong job growth statewide, which major metropolitan area is posting the strongest gains?  Just under half of the job gains statewide in April were in Metro Orlando, which added 12,000 jobs.  Over the last year, employment in Orlando is up 4.5% (4.9% in the private sector).  Official data for metropolitan areas throughout the US for April won't be released until later this month, but it appears that Orlando may have the fastest rate of job creation of any major metropolitan area in the county.  Which industries have led the surge in employment?  Fortunately, it has been quite diversified including leisure/hospitality (up 14,800 or 6.8%), professional/business services (up 10,300 or 5.9%), retail trade (up 6600 or 5.1%), and construction (up 5200 or 10.5%).  One can question the quality of jobs to some extent, but an increasing proportion of high-paying jobs are being added (particularly in construction and professional/technical services).

What are the key takeaways?  The Florida job market is experiencing significant improvement, with strong employment gains and lower unemployment despite an increase in the number of people seeking work.  Orlando is among the strongest metropolitan areas in the nation in terms of the rate of job creation, with a rising portion of the gains in relatively high-paying industries.

Friday, May 2, 2014

April Job Market

The headline numbers of this morning's job report were very strong: unemployment falling to 6.3% and 288,000 new jobs added.  Earlier this week, economic growth was reported to be near zero in the first quarter, but now the job growth was the highest since January 2012 ... is the economy at a standstill or accelerating?
First, let's dissect the job market report.  Let's start with the good news.  The job gains were quite strong and across the board.  In fact, next month the economy will finishing recouping the job losses suffered during the Great Recession (currently 113,000 below the pre-recession peak).  Construction employment reached 6 million, a gain of 32,000 for the month, 189,000 over the last 12 months and the highest level since June 2009.  Professional and Business services added 75,000 jobs in April and 676,000 in the last year.  Food and Drinking places continues to be strong, adding nearly 33,000 in the month and 1.3 million since hitting bottom in Feb 2010 (an increase of 14%).  Currently, 1 out of every 11 employees in the private sector works in a restaurant or bar.  Further evidence of strenght is shown by the increase in aggregate hours worked which, after declining slightly between November-February, is up sharply the last two months.  This provides support for the temporary effects of the harsh winter followed by a Spring thaw.

OK, are there any reasons for caution?  Why did the unemployment rate fall so much?  Over 800,000 people dropped out of the labor force, reducing the participation rate back to its recent low of 62.8%.  If the participation rate had remained constant, the unemployment rate would have remained at 6.7% (so the entire decline was due to fewer people looking for jobs).  It should be noted that the labor force was reported to increase by over 500,000 in March.  Given this volatility, it confirms the need to look at trends over time as opposed to monthly changes.  One more conern is that hourly earnings were flat in April as were weekly earnings, so the recent economic improvement has had little effect on wages thus far.

Going back to the question at the beginning of the post - is the economy at a standstill as indicated by first quarter GDP report or accelerating as indicated by the job market report?  This morning's report provides support for the idea that the harsh winter resulted in a temporary slowdown, supressing first quarter GDP.  Part of the job gains in recent months is due to a bounceback as the weather has improved, but the underlying trend has improved somewhat in 2014.  This doesn't necessarily mean the economy is ready for takeoff, but it does put to rest the idea that the economy is slowing down.

Wednesday, April 30, 2014

First Quarter GDP

The economy barely grew in the first quarter of 2014 (+0.1%).  Though this was below the consensus estimate, many of the reasons for the slowdown were not a surprise.  The inventory buildup in 2013 was pared down somewhat resulting in inventories subtracting almost 0.6% from economic growth.  Exports rose at an unsustainable rate in late 2013, given the state of the global economy.  Some of this gain was given back as exports fell in early 2014.  As a result, net exports subtracted 0.8% from economic growth.  Of course everyone is aware of the severe winter and how that hurt economic growth (though that is difficult to quantify).  Let's look at some of the details.

At first glance, what stood out to me was the growth in consumption led by a significant increase in spending on consumer services - the largest since 2000.  One of the main reasons was a surge in spending on health care (+9.9%), the largest quarterly increase since 1980.  Health care spending rarely increases by more than 5% (just over 10% of the time since 1980), so an increase of nearly10% is extremely high.  In fact, spending on healthcare services added 1.1% to economic growth, the largest contribution since records started to be kept in 1959 (it only exceeded 0.6% one other time).  Why would healthcare spending increase so much?  The Affordable Care Act or Obamacare.  Also, due to the harsh winter, spending on housing and utitities increased by the second highest rate in the last 25 years, adding 0.7% to economic growth.  On the flip side, business purchases of computers and peripheral equipment declined at the fastest rate since 1982, contributing to a decline in overall business investment.

What are the key takeaways from the report?  There were a lot of temporary factors affecting the data, so interpretation needs to be careful.  The biggest disappointment was the weakness in business spending, particularly on equipment.  Watch to see how this performs in the coming months to see whether the economy continues to grow at a modest pace or begins to accelerate.