A look behind at the January 6 week keeps the focus on the labor market. A variety of reports all pretty much point to similar conclusions:
- Business are hiring where they can find qualified workers. Qualified workers are hard to find.
- The weakness in the manufacturing sector does not seem to be seeping into other areas. Manufacturing layoffs were elevated early in December but have since tapered off. Some of those laid off may be moving into construction jobs. The same may be the case for workers in energy extraction where payrolls have been soft while oil prices are relatively low and supplies abundant.
- The contraction of brick-and-mortar locations in the retail sector doesn’t seem to have resulted in a surplus of retail workers as healthier stores are absorbing them or they are moving on to other opportunities as businesses take a chance on hiring people with less skills and/or experience.
- Whichever unemployment rate you prefer – the BLS U3 or U6, or the Labor Department’s insured unemployment rate – the levels are running at sustained lows without much variation. Fed officials say there may be more slack to be found than previously thought, but it is hard to characterize conditions as anything but stretched tight.
- The economic expansion has been running for 127 straight months. The maturity of this historically long expansion might suggest that the labor market would be cooling. It hasn’t so far.
The release of the December Employment Situation contained a few things that might disappoint when viewed in isolation, but overall this was a solid report.
On the Establishment Survey said, December payrolls were up 145,000 which was somewhat below expectations and were further cut into by a net downward revision of 14,000 to the prior two months. But when contrasted with the up 256,000 of November and up 152,000 of October, the report reads as a respectable performance. Gains in average hourly earnings were a minimal up 0.1% month-over-month and the slowest in a year-and-a-half at up 2.9% year-over-year. However, December 2018 was when many companies got a jump on changes in tax law and increased some worker’s pay, so it may not be a fair comparison. Private payroll growth of 139,000 wasn’t as robust as signaled by the ADP National Employment Report’s total of 202,000. However, both measures suggest solid hiring in the private sector, especially for service providers.
The Household Survey got its annual revisions back in December. The unemployment rate remained at 3.5% in December from November. What was more interesting was that the U-6 unemployment rate – defined as “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force” – reached a series low of 6.7%.
The insured rate of unemployment for the week ended December 28 in the initial claims report for the week ended January 4 held at 1.2% where it has been with only the briefest of downward moves since May 2018.
The NFIB’s small business jobs report echoed what was in the national numbers, that businesses are having difficulties in attracting and retaining workers, but are hiring when they can.
The Challenger report for December was a good indication that layoffs associated with slower economic activity – particularly in manufacturing and manufacturing related industries – are by-and-large done for now. Businesses took prompt action to restructure as soon as it was evident that the downturn for the factory sector was going to linger for a while. Other than the ongoing – and fading – restructuring in the retail sector, layoffs seem to be consistent with normal business activity in a modestly expanding economy. Levels may be a bit higher than they were, but not uncomfortably so.
Other indicators were much as expected in the week.
The ISM Non-Manufacturing Index rose to 55.0 for December from 53.9 in November as business activity firmed and new orders continued to expand modestly. The service sector has expanded for 119 straight months and has managed to weather some of the factors that have brought manufacturing into five months of recessionary conditions.
New orders for factory goods were down 0.7% in November with durables off 2.1% mainly due to transportation and nondurables up 0.6% after an increase in petroleum prices.
The outlook for fourth quarter GDP remained little changed. Data on international trade in goods and services in November suggested that the drag from net exports is likely to be less. On the other hand, the change in private inventories probably won’t make a positive contribution to growth. While factory inventories are on the rise, wholesale inventories are essentially flat and retailers’ are down for the quarter to-date.
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