May 2014 Employment Report by Bruce Steinberg

Quick recap

Perhaps the biggest headline from this month’s employment report is that the total number of jobs reached a new high and surpassing the previous zenith of January 2008, just as the Great Recession was starting. We suspect that some pundits (which happens to rhyme with ‘nudnik’, but we digress) will be saying that the economy has now recovered all the jobs lost to the recession. What they may fail to mention is that the population has expanded by about 15,000,000 in that time and the labor force by about 1,550,000. Therefore, we may be back to January 2008 in terms in the number of jobs, but it’s not January 2008 today and the number should be higher.

The unemployment rate was unchanged, or ‘held steady’ depending upon one’s point-of-view, at 6.3 percent in May, the same value as April; it was 6.7 percent in March 2014 and 7.5 percent a year earlier in May 2013.

Jobs Report

Total private-sectors jobs grew by 216,000, which was a bit of a disappointment from April’s gain of 270,000, which may have been higher than it would had been if not for the harsh winter that some labor market observers felt suppressed hiring; the private-sector added 200,000 jobs in March.

The number of jobs in the private Goods-producing sector grew by 18,000 May, which was clearly off April’s growth of 46,000 but fairly in-line with March’s gain of 21,000; ditto the comment above about the affects of the harsh winter on hiring.

  • The Construction sector only needed to create 6,000 more jobs in May after  growing by 34,000 in April and adding 13,000 in  March.
  • Manufacturers did a little better in May with an increase of 10,000, which was clearly an improvement from March and April, that added 4,000 in each of those months.
  • Mining and logging was only able to unearth 2,000 more jobs in May after adding 8,000 in April and 4,000 in March.

The private Service-providing sector added 198,000 jobs in May, which is a bit of a disappointment from April’s gain of 224,000 but still better than March’s increase of 179,000; again, ditto the comment about the affects of the harsh winter.

  • Although the Retail trade sector continued to add jobs, it did so at a slowing pace by growing by only 12,500 jobs in May after adding 43,100 in April and increasing by 28,900 in March.
  • The pace at Wholesale trade followed the same basic pattern with a gain of 9,900 jobs in May after adding 16,200 in April and 7,800 in March.
  • But the Transportation and warehousing sector picked up a little speed with an increase of 16,400 jobs in May, which was better than the 12,100 it grew by in April as well as the 13,900 it added in March.
  • Financial activities trudged along with an increase of 3,000 in May, which was only half the amount of the 6,000 it added in April, but still better than the ‘flat-as-a-pancake’ performance of March.
  • Even the Professional and business services sector’s growth appeared to follow the ‘recovering-from-the-harsh-winter pattern’ with a gain of 55,000 in May that was not as strong as the 71,000 it added in April but better than the 47,000 it grew by in March. Computer systems design and related services added only 6,600 jobs in May and was outperformed by Management and technical consulting services, which is a smaller sector, that grew by 6,800.
  • The Education and health services sector added a total of 63,000 jobs in May with the sector’s highly seasonal Educational services sub-sector adding 7,600. Growth in the Health care and social assistance portion was 54,900 in May, which was much healthier than the 28,500 it grew by in April. Home health care services was up by 6,700 in May after adding only 2,100 in April.
  • New hiring in the Leisure and hospitality sector was up a bit with growth of 39,000 in May that was an improvement from the 24,000 increase of April.

The total number of Government jobs was up by 1,000. The federal government shrank by 5,000; State government was down by also 5,000;but Local government was up by 11,000.

Temporary Help Services Roundup

Although Temporary Help Services was up in May and reached another new high, the numbers for previous months experienced some fairly large downward revisions meaning the earlier reported strength was, well, not quite so strong.

In May, Temporary help services was up 14,300 to 2,859,200, which was a 0.5 percent month-over-month increase and year-over-year growth of 8.5 percent. For April, the jobs number was revised downward by about 11,000 for growth of only 16,000 from March, which was revised downward as well, but by less than 3,000.

And Temporary help service’s market share — that is its portion of all jobs — again reached an all-time high of 2.065 percent in May compared to 2.058 in April.

Steinberg_chart 1

Household Survey

 The  May 6.3 percent unemployment rate was unchanged from April, which was a significant decline from March’s 6.7 percent.

That 6.3 percent unemployment rate was the result of a labor force that grew by 192,000 as the number of employed persons grew by 145,000. In addition, the number of unemployed persons increased, but by only 46,000. The number not in the labor force declined by 9,000.

The employment-to-population ratio was unchanged at 58.9 percent in May but was 58.7 a year earlier in May 2013 as the labor force participation rate was also unchanged at 62.8 percent, but it was higher at 63.4 percent a year earlier. The number of discouraged workers continued to decline with only 697,000 of them compared to 780,000 a year earlier in May 2013.

Manufacturing has come back — well, sort of … (part 2)

Last month we examined the trend with manufacturing jobs and their relationship with productivity (output) and hours worked. We didn’t envision revisiting this subject so soon so we didn’t label last month post as “part 1” but this month can be considered as part 2. We ended posing a query, “… it remains to be seen if manufacturers will need more employees to further increase output. What have you been hearing?”

We heard from Susan Houseman of W.E. Upjohn Institute for Employment Research pointing out that manufacturing trends are commonly misinterpreted because manufacturing output and productivity measurements are being skewed by relatively small sub-sectors — computer and semiconductor manufacturing. Without going into detail (we’ve read through two research papers), the gains in overall manufacturing productivity are grossly inflated because of the way productivity is measured. In brief, the measurement methodology captures quality improvements. And the vast improvements in computers and semiconductors, although relatively small sectors, have created a situation in which overall manufacturing productivity and output growth is dominated by them — so much so that, when adjusting for computer and semiconductor manufacturing, the authors conclude that the nation’s overall manufacturing real GDP has been weak or negative since 2000.

It may appear wrong to take out a specific sector and then conclude that the manufacturing economy is not doing well, but Houseman points to us in an email that, “The rest of manufacturing accounts for roughly 90 percent of value added and employment in the sector and, on balance, is not doing well.  But few people know that one small industry is driving the apparent robust growth.” She suggests that the federal statistics continue publishing the current full manufacturing series, but also produce a sub-series without the IT sectors.

.

The question remains whether the manufacturing sector is experiencing staffing pressures. For obviously reasons, the answer to that question is very relevant to staffing companies, but it also has further implications for the economy in general.

Some labor observers say that there is really no such thing as a worker shortage, at least in the longer term. When employers complain that they cannot find enough employees, it is more likely a result of not able (or willing) to pay a wage that will attract workers they want. Granted, for high skill jobs for which workers need specialized training, experience, and education, offering higher wages may not necessarily result in an immediate flood of qualified employees, but let’s talk about the other end of the spectrum — lower wage production jobs.

 

Imagine an employer who traditionally pays $19.50 an hour and is having trouble getting qualified applicants suddenly starts to offer $32.00 an hour. Of course that employer would be inundated with great applicants, but couldn’t do that without raising its prices to its customers. However, the business may be able to incrementally raise wages and absorb the increase, but prices will need to increase in some point. That is inflation and those in charge of economic policy watch this balance very carefully. When prices rise, wages need to rise as well  — although consumers may also substitute cheaper goods. The relationship between wages and prices is sort of that chicken and egg thing — which actually comes first?

The latest edition of the Federal Reserve’s Beige Book, which just came out earlier this week, includes a lot of comments about the regional trends for wages and prices throughout the country. You may want to review our summation of the Federal Reserve’s latest Beige Book, which pulls out insights about the staffing sector as well as relevant sectors. It also discusses the challenges that employers in myriad sectors are experiencing finding qualified employees and the steps they are taking in attempt to address the situation, which includes providing training as well as increasing capital investments (i.e., automation) so they do not have to hire more employees and still produce more product.

Now, back to the discussion about the manufacturing economy. Since last summer, year-on-year wage growth for manufacturing (the green line) has been higher than for all private-sector jobs (the red line). It certainly is not too much of a stretch to say that manufacturers are raising wages in order to hire enough workers that they need and want.

In reality, the reason for the rise in manufacturing wages is not so simple nor singular. Manufacturing workers are bringing more skills — and hence worth more — to the table that now is being produced more efficiently, which also can result in higher wages. Also note how the wage growth for the professional and business service sector has trended below overall wage growth at about the same time (actually, a few months earlier) — possibly, there’s a better applicant pool so employers are not under pressure to offer higher wages to attract solid candidates.

Steinberg_wage_changes_2007-2

Then for grins, we decided to see how temporary help services wages (the brown line in the lower chart) compare. Although with much wide swings, the trendline for temporary help services generally mirrors the trendline for manufacturing wages.

Although many staffing companies continue to move into higher wage sectors ostensibly because of potentially higher profits and possibly better margins, the wage growth in manufacturing has been outperforming overall wage growth. This may indicate that those employers are raising wages possibly because they are having difficulty in finding enough good applicants. Perhaps it’s a good time for temporary help services to re-work their strategic plans in order to capitalize on this development.

Steinberg_wage_changes_with_THS 3