An Interesting Data Point
On Friday (5/4), the Bureau of Labor Statics (BLS) released their monthly nonfarm payroll employment data. In April, the United States added 164,000 non‐farm jobs missing consensus estimates of 192,000 jobs. While that number was below the average for 2018 thus far (200K), revisions to prior months added a net 30K jobs. The other major components of the “Establishment Survey” were mostly inline. The average hourly earnings edged up 0.1% on the month, an increase of 2.6% from a year earlier and the average workweek remained unchanged at 34.5 hours.
The more interesting headline came out of the Household Survey portion of BLS’s Employment Situation Summary where the headline unemployment rate hit a new cycle low of 3.9%. While outside the scope of this post, the headline payrolls number (164K jobs) and the Unemployment Rate (3.9%) are derived from two different surveys.
Except for a brief period in the early 2000’s, most of the readers of this post (including the authors) have never lived in a period where unemployment was this low for an extended period of time. In fact, one would need to have been of working age during the 1960’s expansion (when GDP growth averaged nearly 5%) to have experienced unemployment at or below 4.0% for longer than a year. This makes our current situation particularly unique.
*Gray bars indicate recessions
*Data from Thomson Reuters 5/5/18
Much has been made over the last several years about the decline in the labor force participation rate and what had been chronic under‐employment as evidenced by the broader U‐6 measure of unemployment. In fairness, the decline in the participation rate preceded the Financial Crisis although it did pick up speed during and after the late 2000s. However, three years ago the rate stopped declining and the U‐6 measure of unemployment is, for all intents and purposes, at or near the lowest levels of the last 25 years.
*Gray bars indicate recessions
*Data from Thomson Reuters 5/5/18
*Gray bars indicate recessions
*Data from Thomson Reuters 5/5/18
The good news: If you are a young person entering the labor force for the first time, a mom reentering the workforce after caring for children, or someone looking to change careers, there has rarely been a better time in the last 25 years to do so. The bad news: history tells us we do not spend very long at these low levels of unemployment before something causes a recession. At Custos, we do not see a recession in the next 12 months, but we are proceeding with one eye on the late cycle signs that this expansion may be nearing its end.
