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.