Friday, December 20, 2013

Job Market: Florida and Orlando

The latest snapshot of the state and local job market was released this morning, showing unemployment declining to 6.4% in Florida (seasonally adjusted) and 5.8% in Metro Orlando (not seasonally adjusted).  In both cases, the rates were the lowest since 2008.  Does that mean that unemployment is no longer much of an issue in Florida?  While the job market has improved, readers of this blog can probably guess what I'm going to say next.  A major reason for the decline in the Florida unemployment rate over the last year has been the decline in the labor force participation rate, which fell from 60.5% in November 2012 to 59.6% in November 2013 (after already falling quite a bit in prior years).  If the participation rate had remained steady over the last 12 months, the unemployment rate would be about 7.7%, a small decline from last November's 8%.  Though employment growth was modest in November (net increase of 6100 jobs, nearly 60% of which were in retail trade), that's coming off of two strong months of job growth in which the state economy added nearly 69,000 jobs.

Metro Orlando's unemployment rate declined as well, but some of it reflects seasonal issues (the local data released today are not seasonally adjusted) and some of it is likely due to a lower participation rate.  That said, there is real improvement in the local job market, but not as much as implied in the official figures.  Employment growth in both Florida and Orlando exceeded the national average over the last 12 months (2.7% in Orlando, 2.5% in Florida, 1.7% in the US).  Leading growth sectors statewide (since Nov 2012) were retail trade and professional/technical services while food/drinking places and ambulatory health care services were the top gainers for Orlando over the last 12 months (though retail trade was responsible for half of the employment gains in November, primarily due to seasonal issues, i.e., Christmas!).

What are the key takeaways from this morning's report about the state and local job market?  Both continue to improve, but the improvement is somewhat overstated due to fewer people participating in the job market (if you're no longer participating in the job market, you're not counted as unemployed).  A relative strengthening of the Florida and Orlando labor markets is evidenced by employment growth statewide and locally exceeding that of the nation (over the last few months as well as the last year).

Wednesday, December 18, 2013

Fed Begins to Taper

The Fed announced that they will reduce their bond purchases by $10 billion (will now purchase $75 billion per month).  It emphasized that future tapering depends on economic data; further tapering will take place if the labor market continues to improve and/or inflation rises from its current low rate.  At the same time, it stated that the "Committee now anticipates, based on its assessment of these factors (labor market, inflation, financial developments), that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal" (words in italics added for clarification).   This represents a change from previous statements in which it stated that 6.5% unemployment was its threshold (though not a trigger, as emphasized by Ben Bernanke).  In other words, previous statements said that the federal funds rate wouldn't be raised until unemployment declined to at least 6.5%.  However, the unemployment rate has fallen more quickly than expected, not because of a very strong job market, but due in part to a declining labor force participation rate.  Thus, the unemployment rate by itself is not the best gauge of the labor market.  In the statement released today, the Fed stated that it will consider various measures of the labor market, not just the unemployment rate.  Prior to today, most economists expected the Fed to begin to raise the federal funds rate in 2015.  What about now?  According to projections released by the Fed today, most members of the Fed still anticipate that the federal funds rate will begin to increase in 2015.

What's the key takeaway?  The Fed thinks that the economy is strong enough to begin to reduce the amount of stimulus, though it still needs significant stimulus.  It thinks that the recent decline in inflation is temporary and that inflation will increase somewhat in the next year or two (so deflation is not a serious threat).  Though it changed the wording of the unemployment threshold leading to an increase in the federal funds rate, this is expected to have little impact on the timing of the increase.

Tuesday, December 10, 2013

The Latest Economic Reports: GDP and Employment

The government released two economic reports last week which, on the surface, indicates that the economy was strengthening in the second half of 2013.  Of course there's more to it than that.  Economic growth for the third quarter was revised up to 3.6% (from an initial report of 2.8%).  Does that mean growth and demand were picking up?  Not quite.  About half of the growth for the quarter was due to an increase in inventories; final sales rose by 1.9% (in line with the previous trend).  In fact, both consumer spending and business investment increased at a slower rate in the third quarter compared to the second quarter.  This was offset somewhat by somewhat faster growth in state/local government spending.  Also, another measure of economic growth, gross domestic income, rose by 1.4% in the third quarter (after growing more quickly than GDP in recent quarters).  What does this mean?  More of the same.  The recent trend in economic growth has been about 2%.

The other major economic news was the November Employment report, which showed an increase of 203,000 jobs with the unemployment rate falling to 7%.  Is this good news?  Yes, but not as good as it appears on the surface.  If you have read this blog before, you probably know what's coming next.  The main reason for the decline in the unemployment rate in recent months (and recent years) is the decline in the participation rate (a smaller portion of the population participating in the job market).  The participation rate fell from 63.2% in September to 63% in November (was 62.8% in October).  If it had remained at 63.2%, the unemployment rate would have been 7.3% in November (a slight increase rather than a decline of 0.2%). The quality of the jobs added appeared to improve somewhat in November compared to previous months, with a higher portion of jobs in relatively high-paying industries such as construction and manufacturing and a smaller share in relatively low-paying industries compared to previous months.

Together, the two reports suggest that the economy continues to grow at a modest pace: an underlying growth rate of 2% with about 200,000 jobs per month.