Job Growth – Jobs, Employment, Labor and Livelihood Overview (JELLO) – Easy Pod (July 16, 2013)
Job growth is key to a thriving, healthy economy. I’m continuing a feature called “Easy Pod” – a collection of indicators that help portray the current status of something. In this post, that something is the employment situation of the country, which of course will examine job growth as a major factor.
NOTE: There may be a more recent publication on this topic. You may be interested in my latest Job Growth (JELLO) Easy Pod analysis.
Quick ‘n Easy
Why do we care about job growth? Without jobs, consumers can’t be consumers because they wouldn’t have any money to spend. In a healthy economy, we see strong job growth and a low unemployment rate.
Why do we care so much about jobs, employment, labor and livelihood so much? (OK – so that last term is something I threw in there to make “JELLO” work – investors don’t use that one!) Simply put, jobs are the lifeline of the economy. When the economy is working at its best, we have great ideas that turn into great products. And those great products have to be manufactured, marketed and sold to the consumer. In order to make all of that happen, there have to people working to make it happen. That means job growth. And the income they take home will enable them to buy a house, a car, groceries, clothes, toys, appliances, vacations and tickets to the movies. All of the money they spent is now income for another set of people, who then go and do the same thing. Without a job, consumers don’t have (or don’t act like they have) the money to buy anything, so the whole thing slows down. That’s good enough for an “Easy” look at why we want to see job growth and why jobs matter.
There are a number of indicators that shed light on what’s happening in employment, and there are even some people who combine these indicators into one number (an index) to give a summary. In this “Easy Pod” I will take a look at a few indicators and indices that I like to follow to decipher what’s happening in job growth. Check back regularly for updates.
(Last JELLO Easy Pod was April 10, 2013)
|Indicator (Click for details – only works if full article is open)||Current Rating (Change Since Last Easy Pod)|
|Monthly Change in Nonfarm Payrolls||Positive|
|Employment Trends Index||Neutral|
|ISM Report on Business||Positive|
|Gallup Daily Poll: U.S. Employment||Negative|
|Easynomics Temporary Staffing Index||Positive (upgrade)|
|Intuit Small Business Employment Index||Positive (upgrade)
Indicator: Nonfarm Payrolls – Monthly Change | POSITIVE
Easy Intro: None yet | Link to Nonfarm Payrolls data | Latest Date This Info Represents: June 2013
Quick ‘n Easy
The monthly change in jobs (excluding farming jobs, because they have lots of ups and downs that mask the underlying trend) is one of the most widely accepted barometers of the labor market. The average monthly change over the past three months has been enough to keep pace with the growing force, but not too much more than that.
Easy Description: Every month, the Bureau of Labor Statistics (BLS) issues the “Employment Situation Summary” and discusses the changes in the labor market. The headline number everyone looks for is the change in nonfarm payrolls. The reason we are looking for the change in number of “nonfarm” jobs is that farming is a very seasonal business, so its patterns mask the general underlying trends in the regular labor market.
Generally speaking, we need about 100,000 new jobs per month to keep up with the number of people who are entering the labor force nationwide. Because we’ve lost millions of jobs since the financial crisis of 2008, we’ll need numbers significantly above that for several years before we get back to “normal” levels.
Latest Reading: +195,000 nonfarm payrolls increase in June 2013. The average of the three most recent months is about +196,000. The graph on the right shows the total number of nonfarm jobs over the past five years.
NOTE: For simplicity, I am only reporting the results of the survey that is sent out to businesses. In my “Easy Trends” analysis each month, I look at an average of that survey and another survey of households. Here’s a link to my most recent analysis of nonfarm payrolls trends.
Implications: The country was absolutely bleeding jobs in the few months after the financial crisis hit in the fall of 2008. Things steadily improved until a drop back in early summer 2010. Ever since then, we still have not seen a negative number of nonfarm payrolls (excluding temporary Census workers hiring/laying off), but we have come close several times. We probably need about 200,000 jobs a month right now to cover people entering the workforce and to get jobs for those who lost them. The average of the latest three reports is barely below that number but still well above the 100,000 or so we’d typically need to keep pace with the growing workforce.
Easynomics Rating Methodology: For this index, I will base my rating on whether the average of the three most recent readings is enough to keep pace with the growing workforce. ”Positive” for 3-month average of 100,000 or above, “Negative” for 3-month average below zero, and “Neutral” for anything in between.
Quick ‘n Easy
A combination of indicators related to the jobs market through June 2013 suggested that the coming months will probably show continued growth in jobs but at a slower rate than what is needed. It likely won’t be enough to quickly push down the unemployment rate.
Easy Description: Combines several indicators together to provide an outlook for employment growth.
Latest Reading: 111.64 for June 2013 (up 3.8% from one year ago) – May 2013 reading was revised down to 111.59
Implications: The index edged higher as it generally has been since late 2012. According to an expert on the index, “In the second quarter of 2013, the Employment Trends Index grew more slowly than in the previous two quarters. Even though employment has been growing faster than expected in recent months, the current slowing of the ETI suggests that acceleration in employment growth is unlikely in the near future.”
This is consistent with my analysis of the June 2013 Employment Report and how the trend of sluggish growth continues. Those comments suggest continued sluggish growth in jobs, just as we see sluggish growth in the overall economy.
Easynomics Rating Methodology: For this index, I will base my rating largely upon what the index expert says. If the indication is for job growth of any kind, I will rate it either “positive” or “neutral” depending upon the level of growth. If jobs are expected to decline, I will issue a “negative” rating.
Indicator: ISM Report on Business | POSITIVE
Easy Intro: None yet | Link to ISM Report on Business (table shows both ISM reports) | Latest Date This Info Represents: June 2013
Quick ‘n Easy
Surveys of purchasing managers (conducted by ISM) indicate whether employment is expanding (above 50) or contracting (below 50) in both manufacturing and non-manufacturing companies. The June 2013 surveys indicate an overall expanding employment situation nationwide at rates that are at or above historical averages, although the manufacturing companies (which make up only about 20 percent of jobs) shrunk their workforce in June.
Easy Description: The Institute for Supply Management surveys the nation’s purchase and supply executives each month to understand what’s happening in their businesses. They do this for manufacturers and non-manufacturers (also called “service”). One of the questions they ask has to do with employment. The responses are then combined into an index for employment. I like to look at this index for both manufacturers and non-manufacturers to see whether employment is improving (above 50) or worsening (below 50) nationwide.
Latest Reading: Manufacturers in June 2013 (48.7) / Non-manufacturers in June 2013 (54.7) – Weighted average (20/80) = 53.5
Implications: The manufacturing companies indicated a shrinking workforce for the first time since September 2009. The non-manufacturing companies indicated on their surveys that employment was expanding for the 11th consecutive month in June. The weighted average was in “positive” territory based on my methodology, indicating that employment was likely growing across the country at rates that are at or above historical averages.
Easynomics Rating Methodology: For this index, I will use a weighted average to assign ratings. I will multiply the manufacturing component by 20 percent and multiply the non-manufacturing component by 80 percent. The sum of the two will determine my rating. I will assign “Positive” if the weighted average is 52 or higher, “Negative” if it is below 48, and “Neutral” for anything in between.
Indicator: Gallup Daily Poll: U.S. Employment | NEGATIVE
Easy Intro: None yet | Link to Gallup Daily Poll of U.S. Employment | Latest Date This Info Represents: July 14, 2013
Quick ‘n Easy
Based on daily surveys by Gallup, the unemployment and underemployment rates are both very high through July 14 and appear to have remained unchanged over the last year. The percent who are underemployed (includes unemployed) is about 0.1 percent higher than it was one year ago.
Easy Description: Gallup conducts phone surveys of about 30,000 people daily to determine what percentage of the population is “unemployed” (but available and looking for work) or “underemployed” (unemployed or working part-time but would like to work full-time).
Latest Reading: On July 14, the “unemployed” are 7.9 percent, while the “underemployed” are 17.3 percent
Implications: These numbers are both very high, historically speaking. Unfortunately, the “unemployed” number and the “underemployed” are both almost exactly where they were a year ago.
Easynomics Rating Methodology: I prefer to look at the “Underemployed” number, because it is more inclusive. It looks like Gallup’s survey runs about 2 percent higher than the official BLS numbers for the “underemployed.” The BLS figures historically are around 8 percent in good times, so the Gallup number should probably be around 10 to represent a healthy labor market. For this index, I will assign “Positive” if the underemployed percentage is below 10, “Negative” if it is above 12, and “Neutral” for anything in between. Once the labor market normalizes a bit, I may adjust these thresholds.
Indicator: Easynomics Temporary Staffing Index | POSITIVE (Upgrade)
Easy Intro: Easy Intro to Easynomics Temporary Staffing Index | Latest Date This Info Represents: June 2013
Quick ‘n Easy
An index measuring the change in overall temporary/contract jobs on a monthly basis has been increasing since June 2009 and nudged its way up into “positive” territory as of April – basically at a “normal” level. Considering that changes in temp jobs are usually seen as leading indicators for the labor market – this suggests that we are likely to see a bit of acceleration in job growth in the near term.
Easy Description: Changes in the temporary jobs area typically lead the changes in the overall jobs market. This index tracks two different sources for what is happening to temporary workers: 1) American Staffing Association survey of staffing/recruiting firms and 2) TEMPHELPS Temporary Help Services component of the BLS Employment Situation Report (the monthly “jobs report” that everyone pays attention to). The reason the ETSI is special is that it seasonally adjusts the ASA staffing index (which is not provided on ASA’s own website) and averages it with the TEMPHELPS data. This way, we can be more sure that a trend is real because it would be confirmed by two sources.
Latest Reading: For June 2013, the ETSI level was 96.25, its highest level since November 2007.
Implications: The index steadily rose from its low in June 2009 through late 2012. It currently sits fractionally below the “normal” level of about 98, seen in late 2006 or early 2007, but in my book it’s high enough now to be in a “positive” range. This suggests that the gains we’ve seen in jobs may begin to accelerate a bit in the near future, meaning we may begin to see a meaningful decrease in the unemployment rate. It won’t be immediate, but hopefully in the next six months or so.
Easynomics Rating Methodology: For this index, I want to see levels similar to the second half of 2006 and first half of 2007 – that translates to a level of about 98. I will assign “Positive” if the index is 96 or higher, “Negative” if it is below 90, and “Neutral” for anything in between.
Indicator: Intuit Small Business Employment Index | POSITIVE (Upgrade)
Easy Intro: None yet | Link to Source: Link to Intuit Small Business Employment Index | Latest Date This Info Represents: June 2013
Quick ‘n Easy
Intuit provides payroll services for thousands of small businesses. Using data from their services, they publish an index that shows small business employment in June 2013 was rising at a healthy rate, something indicative of a healthy labor market. Because small business employment tends to lead overall employment, this is positive news for the labor market.
Easy Description: This index is based on online employment data from approximately 60,000 small business employers who use Intuit Online Payroll, each with fewer than 20 employees. These smallest employers are important to the economy as they comprise 87 percent of the total U.S. private employer base and employ nearly 20 million people.
Intuit reports data for three categories: small business employment, compensation, and hours worked. Intuit analyzes and publishes the data at the beginning of each month.
Latest Reading: The Intuit Small Business Employment Index was 95.1 for June 2013, which was 0.12 percent above the previous month’s revised reading. The latest reading is 0.5 percent higher than it was three months ago. That translates to an annual pace of positive (+) 1.91 percent. (see graph to the left – blue line is the index of interest)
Implications: This index had mostly moved sideways since March 2010 but looks to have accelerated since March 2013. The annualized pace for the last three months is about positive (+) 1.91 percent. That 3-month growth rate is above what I’d consider a “positive” level for this index.
Easynomics Rating Methodology: For this index, I will look at the change over the last three months and convert it to an annual pace (annualized rate). I’d consider a 0.8 percent annual pace of growth a level that just keeps up with the size of the workforce. This is a very rough estimate based on the kind of rate you would see in nonfarm payrolls if the economy added 100,000 jobs with the current labor force size that we have. I will assign “Positive” if the 3-month change in the index is an annual pace of 1.3 percent or higher, “Negative” if it is below 0.3 percent, and “Neutral” for anything in between.
As a result of two upgrades (Easynomics Temporary Staffing Index, Intuit Small Business Employment Index), we currently have 4 positive, 1 neutral and 1 negative components. Using a scale of positive=3, neutral=2 and negative=1, this would average a rating of 2.50 out of 3 (versus 2.17 last time), which is in the upper third of possible scores. In other words, my set of indicators averages a “positive” rating – an upgrade from the last time I ran this report. The consensus view of the above indicators is that the labor market is consistent with an economy that is growing at least as fast as the historical average rate.
The lone negative component (Gallup) appears to be a snapshot indicator. I highlight that because it’s not predictive – we all know things aren’t great right now, but most of the other indicators show signs of improvement, which means the Gallup poll might look better in a year or so. The big caveat to all this is that the indicators I’ve selected don’t look at the finer details of the kinds of jobs that are being created. There are indications that the new jobs pay less, and many are accepting part-time work when they really want full-time work. But there is no question that things have been improving. We are far from being in a good place – we are just now in a healthy trend.