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.

Friday, April 18, 2014

March Job Market Report: Florida and Orlando

The latest report regarding the status of the labor market for Florida and its metro areas was released this morning and it confirmed the recent strengthening taking place in the local job market.  Though the unemployment rate for Florida rose slightly, it was due to an increase in the number of people looking for jobs rather than fewer jobs available.  After declining since the start of the recession and falling to slightly less than 60% a few months ago, the participation rate is now 60.5%.  Payrolls rose by nearly 23,000 in March, with private payrolls up 3.5% over the last 12 months (one of the highest rates in the nation).  Leading sectors included accommodation and food services (up 6200 for the month) and construction/real estate. Construction has now added over 40,000 jobs (+11.5%) since last March and is up nearly 20% since reaching a low in the summer of 2011 while real estate, rental and leasing finance has added 7700 jobs over the last 12 months (+4.7%).  The good news in construction and related sectors should be tempered by recognizing that construction employment is back up to where it was in July 2009, at the end of the recession.

Central Florida added 3000 jobs in March (not seasonally adjusted), 2600 of which were in leisure/hospitality.  As with the state, construction had the largest employment growth rate over the last year, up 8.6%.  Other areas of growth included leisure/hospitality (up 9500 or 4.3%), retail trade (up 5600 or 4.3%) and professional/business services (up 5500 or 3.2%).

 After modest job growth in recent years that struggled to keep up with population growth, both the local and state job markets have strengthened recently, achieving both stronger and broader employment gains which have begun to attract those on the sidelines to re-enter the job market.

Friday, April 4, 2014

March Employment Report

The government released its latest snapshot of the job market this morning.  The headline figures showed no change in the unemployment rate (remained at 6.7%) while the economy added 192,000 jobs.  However, once one digs into the details, the report was stronger than the headlines indicate (based on recent standards).

The employment-population ratio rose to 58.9%, the highest rate since August 2009.  The year-over-year increase (0.4%) was the largest since January 2007.  In addition, the labor force participation rose to 63.2%, the highest since September 2013.  The year-over-year decline (-0.1%) was tied for the smallest since October 2008 (the last time it increased over a 12-month period).  OK, this isn't great news, but it suggests that the participation rate may be stabilizing and employment growth is finally outpacing population growth (both are indications of a strengthening job market).

Private employment is at its highest level ever (finally exceeding its pre-recession level), though total employment is still 437,000 below its January 2008 high (due to a decline in government employment).  In addition to the gains in employment, hours worked also increased.  Total hours worked for all employees (not the average work week) is now slightly higher than right before the recession (up 0.1% since November 2007, though slightly lower than early 2008).  New highs for total hours worked were achieved in education/health (up 10% from Nov 2007), professional/business services (up 8.5%) and leisure/hospitality (up 8%).  Lagging industries include construction, which is down 20% since the start of the recession, but reaching the highest level since March 2009, and manufacturing, which is down 10% from the start of the recession but at its highest level since December 2008.

What are the key takeaways?  The labor market is showing signs of real improvement, though still not as much as most would like.  The job market has recovered most of the ground lost during the recession, but population has increased quite a bit since then, so it is still far from being a strong job market.

Wednesday, March 19, 2014

Federal Reserve Policy statement: March 19, 2014

As expected, the Fed announced further tapering, reducing bond purchases to $55 billion per month.  Also as expected, the Fed removed its reference to the 6.5% threshold as an indicator of when it would consider raising the federal funds rate.  How did financial markets react?  Yields on short- and long-term bonds rose quite a bit.  Why?  One reason is hidden in its economic forecast.  If one compares the March 2014 forecast with the December 2013 forecast, the median forecast for the federal funds rate rose from 0.75% to 1% for the end of 2015 while the median forecast for the end of 2016 rose from 1.75% to 2.25%.  In other words, members of the FOMC now anticipate raising the federal funds rate a little earlier in 2015 and expect rates to rise more quickly than previously thought.

For further information about the Fed's latest economic forecast, see my economic forecast web page.

Monday, March 17, 2014

Small Business in the Aftermath of the Great Recession

The most popular post on my blog involves comparisons of economics growth of small business vs. big business.  In Fall 2013, I wrote an article for the Rollins Graduate Business School Alumni Newsletter that examined the issue in more detail ("Small Business in the Aftermath of the Great Recession").  Recently, I made a brief presentation to the Winter Park Chamber of Commerce on the same topic.  What were the key takeaways from the article and presentation?  As one would guess, the rate of new business creation declined significantly during the recession while the rate of business destruction soared.  In recent years, the rate of business destruction has declined to at or below where it was prior to the recession.  Meanwhile, new business creation has improved, but still lags where it was prior to the crisis.

As a result, net business creation is still quite small compared to before 2007 (the most recent figures indicate that net new business creation is about half of what it was in the mid-2000s). According to the Business Employment Dynamics survey, small business (those with fewer than 50 workers) shed 3.6 million jobs during the recession, but recovered 2.2 million through the second quarter of 2013 (latest data available) for a net loss of 1.4 million jobs.  Meanwhile, large businesses (those with more than 500 employees) lost 4.3 million workers during the recession, but added 3.6 million through the second quarter of 2013 for a net loss of 700,000 employees (medium-sized businesses have experienced a net gain of 100,000 workers - loss of 1.6 million followed by a gain of 1.7 million).  Thus, it appears most of the remaining shortfall in employment is due to the underperformance of new and small businesses. Given that there was a financial crisis, access to credit played an important role in the relative weakness of small business.  The following figure illustrates the difference in the net tightening of lending standards for small vs. large business:

Thus, though lending standards began to ease in 2011 for large business, access to credit continued to tighten for small business before stabilizing in 2012 (preliminary evidence indicates that it eased in 2013).  It gets more complex, but it appears that tight credit due to the financial crisis had a larger impact on small business, helping to explain their relatively weak economic performance.  For those interested in more detail, feel free to read the article and.or view the presentation.

Friday, March 7, 2014

February Employment Report

The February Employment report showed an increase of 175,000 jobs (162,000 in the private sector) while the unemployment rate rose slightly to 6.7%.  The initial response of many was that this was a good report. Though the report was pretty good, that's relative to expectations and recent trends (we used to want gains in excess of 200,000 for a report to be considered good).  Over the last 3 months, the economy has added an average of about 129,000 jobs.  Let's look at some of the details.

The leading growth sector was professional/business services, which added 79,000 jobs (121,000 so far in 2014, about 40% of all job gains).  Healthcare bounced back somewhat, adding 9500 jobs in February (averaging just under 6000 per month in the last 3 months - more on the health care sector later in this post).  While payrolls increased, aggregate hours worked declined in February and is down slightly in 2014.  So far this year, hours worked is down in construction, manufacturing, retail trade, information services, and education/health while it has risen in professional/business services, mining, financial activities, and leisure/hospitality.

The increase in the unemployment rate was slight, but still reflects a decline of 0.3% over the last three months while the participation rate remained stable over that period (so the recent decline in the unemployment rate was due to employment gains as opposed to fewer people looking for work).  Meanwhile, the employment-population rate remained at 58.8%, above it's cycle low of 58.2% (down from 63% before the recession).  Interestingly, the increase from the low was due to higher employment-population ratios for less educated workers.
  • the ratio for those that did not finish high school has risen 3.2% from it's low (currently 41.7%; near the highest since Spring 2008) 
  • high school grads rose to 54.7%, up 1.1% from it's low  
  • those with some college declined to 62.8%
  • college grads declined to 72.6%
The figures for those with some college as well as college grads are both near the lowest since records began in 1992 (October 2013 was lower in both cases).  still, the more education the better, as reflected by the higher employment-population ratio for those with more education.

What explains the slowdown in employment in health services?  The three-month gain in healthcare employment (17,700) is the lowest since records started being kept in 1990 while the 12-month gain fell to below 200,000 for the first time since 2000.  Which components of healthcare are responsible for the slowdown?  Hospitals have reduced employment by 2800 over the last year, the first year-over-year decline since early 1995 while nursing care facilities have shed nearly 10,000 jobs over the last 12 months, continuing a pattern begun in late 2011 after decades of adding a significant number of jobs.

What are the key takeaway from the report?  The economy remains on a modest-to-moderate growth track - not too hot and not too cold.  Some of the recent slowdown in employment growth may reflect structural changes taking place in health care, particularly among hospitals.

Friday, February 7, 2014

January Employment Report

The January job market report showed that the unemployment rate declined to 6.6% (down from 6.7%) and the economy added 113,000 jobs (142,000 in the private sector).  As usual, there were mixed messages in the report, but it was somewhat disappointing.  One question that keeps coming up is how much weather is affecting the data (though the data is seasonally adjusted, this has not been a normal winter).  However, one would expect that construction is more sensitive to the weather than most other industries and it added 48,000 jobs in January (accounting for more than one-third of the job gains in the private sector).  If weather was a major issue in January, you would think construction would have lost jobs.  What I think happened is that weather affected construction in December and there was a rebound in January; construction added 26,000 jobs over the last two months (13,000 per month), which is probably a more accurate gauge of construction employment.

While gains in construction employment was artificially high in January, retail trade employment was artificially low.  Why do I say that?  Employment in retail trade - sporting goods, hobby, book, and music stores fell by 22,300 in January after rising 21,500 in the previous quarter (resulting in little change since the late summer).

Which sector is responsible for slower employment growth in recent months?  The private sector averaged about 200,000 new jobs per month from Nov 2012-Nov 2013, but only 115,000/month in the last two months.  Professional & Businesses services had average gains of 58,000 jobs per month from Nov 2012-Nov 2013, but only 20,000 per month in the last two months; health care added 20,000/month from Nov 2012-Nov 2013, but only 1,000/month in the last 2 months.  Together, they account for 57,000 out of the 85,000 fewer jobs per month (about two-thirds of the slowdown in employment gains).  It'll be interesting to watch this trend in the coming months (hard to explain this slowdown on the weather).

The household survey showed a decline in the unemployment rate accompanied by a increase in the participation rate, which is a good combination.  The household survey tends to be more volatile than the establishment survey (used to estimate employment gains).  For example, the survey showed an increase in the labor force of more than half a million people in January after a similar decline in the fourth quarter, resulting in little change since September.  Over the last year (Jan 13-Jan 14), the labor force declined by about 240,000 people, resulting in a decline in the participation rate from 63.6% to 63%.  Yes, here it comes...  If the participation rate had remained constant (at 63.6%), the unemployment rate would be 7.5% instead of 6.6% (note: it was 7.9% in Jan 2013).

What are the key takeaways from the report?  The labor market continues to struggle, with employment gains slowing in recent months, independent of the weather.  Two months do not make a trend, but possibly a start of a trend.  It will be interesting to see if next month's report confirms the slowdown in employment in health care and professional/business services.

Friday, January 31, 2014

Monthly Income and Spending Report

Yesterday's GDP report received a lot of attention, but today's report on personal income and spending for December is likely to receive little attention.  The information from the report was already incorporated into the GDP report, so in some ways it is old news (24 hours old).  However, there are additional details that provide insight into the state of the economy.  The headline numbers show that consumer spending (adjusted for inflation rose briskly in the fourth quarter, though at a more modest pace in December, as the quarter ended.  Meanwhile, income adjusted for inflation was pretty flat in the quarter, declining slightly in December.  If income is flat and spending increases, that means the savings rate fell.  It now stands at 3.9%, which is the lowest since 2008 (other than January 2013, which was distorted by income adjustments in anticipation of the tax hikes in 2013).  Optimists will say that consumers are gaining confidence and don't think they need to save as much while pessimists will claim that the recent increase in consumer spending is not being supported by gains in income.  My take is somewhat in between.  The overall pace of consumer spending is likely to increase somewhat compared to recent years, but not back to the rate of the good old days.  For many households, access to credit is limited and future increases in spending are likely to be constrained by increases in income, which are likely to remain modest (though somewhat higher than in recent years).

On an unrelated note, one of the biggest concerns facing financial markets in recent weeks is the state of emerging markets.  I may post some comments soon about it, but in the mean time I'll refer you to comments from economists from Wells Fargo, which I think are pretty much on target.

Thursday, January 30, 2014

Fourth Quarter GDP

The government released its first estimate of GDP for the fourth quarter of 2013 this morning, showing 3.2% growth for the quarter and 2.7% compared to the fourth quarter of 2012.  The details were generally good, but some don't look sustainable.  Good news included consumer spending rising by 3.3%, it's fastest rate since the end of 2010.  On the flip side, residential investment fell at nearly a 10% rate, it's first decline since the summer of 2010.  Though residential construction may not grow as quickly in the coming year (compared to the double-digit growth seen in recent years, this was probably an aberration due to weather).  Business investment grew by just under 4%, somewhat slower than the middle of the year due to a decline in business construction).  The private domestic economy (consumers and businesses) grew by 2.4% in the fourth quarter compared to 2.25% in the third and 2.2% in the second (i.e., growth has been relatively stable, but increasing slightly).

Exports added 1.5% to economic growth, the second strongest contribution since the end of the recession. Given the state of the global economy, this is unlikely to be repeated (exports may do fine, but are unlikely to grow as rapidly as at the end of 2013).  Federal government purchases fell by 12.6% due to both cuts in defense spending as well as nondefense spending (as a result of the government shutdown). Given the recent passage of the budget covering the next couple of years, this is unlikely to be repeated.  After adding about 1.7% to economic growth in the third quarter, inventories added 0.4% to growth in the fourth quarter. Though inventories have added to economic growth throughout 2013, that's unlikely to be repeated in 2014.

What does this report tell us about the economy?  First, you'll note that the analysis keeps using the phrase. "this is unlikely to be repeated."  Exports and inventories are unlikely to add as much to economic growth in 2014 while residential investment and government purchases are unlikely to subtract as much from growth as they did at the end of 2013.  So what's the likely direction of economic growth?  Though some consumers still face headwinds (student loan debt, modest growth in incomes, ...), it appears that much of the deleveraging as a result of the financial crisis is over.  As such, consumer spending will pick up compared to recent years.  Combine this with moderate growth in business investment and you get economic growth approaching 3% in 2014.  If the US does grow by 3%, it'll be the fastest pace of economic growth since 2005.

Friday, January 24, 2014

The Florida & Orlando Job Market

The latest information about the state and local job market was released this morning, showing rising employment and a declining unemployment rate for both Florida and metro Orlando.  Though I normally comment on the data for the month, since this report wrapped up 2013, I think it's helpful to also reflect on the year.

The unemployment rate in Florida declined from 6.4% to 6.2%.  If you've read this blog before, you know the next question - was it due to employment growth or fewer people participating in the job market?  The participation rate was down fractionally, so this time it reflects an improvement in the labor market.  For metro Orlando, the unemployment rate fell to 5.5% from 5.9%.  Some of this was due to seasonal factors, but it also reflects a stronger job market.

Florida added over 14,000 jobs in December, 13,500 in the private sector led by retail trade, which added 9100 jobs (seasonally adjusted).  Orlando added 6500 jobs in the private sector (6000 overall; not seasonally adjusted), with half of the jobs added in retail trade (2100) and food/accommodation places (1000).  Looking at the monthly figures, it's easy to question the quality of jobs added both statewide (70% in retail) and locally (50% in retail & hotels/restaurants).  However ...

For 2013 as a whole, Florida added nearly 195,000 jobs in the private sector (3.1%).  The largest gains were in construction (+8.4%), retail trade (+5.5%), real estate, rental, & leasing (+4.9%).  Digging a little deeper, leading categories included civil engineering construction (+12.9%), building material and supply stores (+10.3%), architectural, engineering and related services (+9.8%), and specialty trade contractors (+8.7%).  In other words, the housing rebound contributed significantly to a rebound in the Florida job market.

Meanwhile, metro Orlando added 32,500 private sector jobs, a gain of 3.4%.  Leading sectors included ambulatory health care services (+7.1%), arts & recreation (+6.5%), food/drinking places (+5.1%), and real estate, rental & leasing (+4.7%).  Though construction was an outperformer, it didn't play as significant role locally as it did statewide.

What about the unemployment rate?  The Florida unemployment rate declined from 7.9% in December 2012 to 6.2% in December 2013.  However, much of the decline was due to a falling labor force participation rate, which fell from 60.5% to 59.6%.  If the participation rate had remained stable, the current unemployment rate would have been 7.57%.  Nationally, the falling participation rate was responsible for the entire decline in the unemployment rate (i.e., the unemployment rate for the US would have remained at 7.9% if the participation rate had remained constant).

What's the key takeaway from the report?  Though retail was largely responsible for the job gains in Florida in December (remember, the data are seasonally adjusted, so that's not due to Christmas), the Florida job market outperformed that of the nation in 2013, both in terms of job gains and falling unemployment.

Friday, January 10, 2014

December Job Market Report

The December job market report was disappointing, falling significantly short of expectations as the economy added just 74,000 jobs.  Meanwhile, the unemployment rate fell to 6.7%, the lowest since 2008.  What comes next is similar to what I've written quite often over the last year, but it has to be said.

Why did the unemployment rate decline from 7% to 6.7%?  The main reason was that more people stopped looking for work, reducing the labor force participation rate to 62.8%, the lowest since early 1978.  If the participation rate had not changed, the unemployment rate would have remained at 7%,  Comparing December 2012 to December 2013, the participation rate declined from 63.6% to 62.8%.  If the participation has remained constant, the unemployment rate would have also remained unchanged at 7.9% (so the entire decline in the unemployment rate in 2013 was due to a lower participation rate).  During the last five years, the noninstitutional adult population has increased by about 11.7 million people while the labor force has increased by 60,000 (December 2008-December 2013, not seasonally adjusted since we're comparing the same month; given new seasonal adjustments, the seasonally-adjusted labor force has increased by 280,000).  As a result, the participation rate has dropped from 65.8% in December 2008 to 62.8% in December 2013.  If the participation rate had not changed, the unemployment rate would currently be 10.9%.  As discussed elsewhere, some of the decline in the participation rate was expected due to the aging of baby boomers, but it is clear, based on the data, that the primary reason for declining unemployment in recent years is a smaller portion of people participating in the job market.

Let me stick with the negative before pointing out some bright spots.  Job gains in December were led by retail trade (+55,000) and temp jobs (+40,000).  Given a net increase of 74,000 jobs (87,000 in the private sector), that means the rest of the economy lost jobs.  In addition, hours worked declined, confirming weakness in employment.  What about the bright spots?  Given that these are estimates, it's helpful to look at three-month trends.  In the fourth quarter (Sep-Dec 2013), the economy added 515,000 jobs (530,000 in the private sector), for an average of 172,000 per month (177,000 in the private sector).  Nearly 200,000 of these jobs were retail trade or temp jobs (nearly 40%); still a high proportion, but not over 100%!.

Here are some more interesting numbers regarding changes in employment by age.  Which age group has experienced the largest employment gains in the last year?  According to the household survey, those 55 and over achieved just over one-third of job gains; almost 30% went to those between 25 and 54; 27% to those between 20 and 24, and just under 10% went to teenagers.

Enough with the numbers.  What are the key takeaways from this report?  Despite the decline in the unemployment rate, the report was quite weak, led by weak job gains, primarily in low-paying sectors, and a decline in the participation rate.  However, looking at the three-month trend and considering other reports about the economy, it's like that the report understates the strength of the job market.  For the fourth quarter as a whole, the labor market continued it's modest healing, though noticeable weaknesses remain.