02 October 2015

So, What's Really Going on in the Job Market? (Why 2015 Will Still Be the 2nd Best Year of The Century)

Many analysts were disappointed in the jobs report today. The forecast - based on ADP's Wednesday report - was for 200,000. Not only did the jobs report come in 57,000 below that (it hit 143,000), but the two previous months were revised downwards by 59,000. When the dust settled, the economy had nearly 120,000 fewer jobs at 8:30 eastern than people had been assuming at 8:29. That's a lot of jobs to lose in a minute.

So is that reason for concern?

First of all, let's put it in perspective. The longest run of uninterrupted job creation streak before this was exactly four years. The next longest was 46 months. This streak? It is now at 5 years and counting. No streak on record (data goes back to 1939) has ever stayed above zero for this long. And when this streak falters .... it hits 144,000 jobs gained? 60 months in, the next two longest streaks had "faltered" to the tune of losing 1.6 million and 856,000 jobs. At this point they weren't falling below average for the streak. No. They were instead shedding jobs at a rapid rate. If job gains of 144,00 is our equivalent to actual job losses of around a million, let out a loud hallelujah now.

Secondly, the question is whether this is meaningful. In any given month, the American economy destroys and creates more than 2 million jobs. We might talk about a net gain of 144,000 jobs, but obviously there were jobs lost in September as well as gained. The jobs report gives us the difference between these two. In a typical month during this recovery, the economy might create 2.4 million jobs and destroy 2.2 million for a net gain of 200,000. (Which is about the average for this 5 year streak.)  Missing a consensus forecast by 70,000 means that one of those numbers was off by about 3%. It is noise in the signal, static on the radio, normal variation.

Even with the weak numbers, the number of employed Americans is up about 2.2 million from this time last year. Meanwhile, an estimated 10,000 baby boomers are retiring every day. This works out to about 3.6 million in the last year. The job participation rate is dropping now as they leave the job market just as it rose when they entered it in the 1960s. (This point about job participation rate is made here by urban camel.) Baby boomers are like a pig in a python - creating a bulge in the numbers every time they enter a phase of life (whether university enrollment, job creation, home prices, or - now - retirement).

Is there reason to worry? Always. Just as there are always reasons for hope in a recession. The economy could turn within a quarter. Having said that, the reports of the last few months are not cause for alarm. They fall within normal variation for this recovery.

My prediction? The last three months of this year will be so strong that the analysts will change their tune to one of wonder. This year will turn out to be the second best year of this century for job creation. (That means at least 243,000+ jobs a month average, between revisions and new reports.)

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