Friday, May 4, 2012
The April gain in employment was less than expected, but with substantial upward revisions to prior months, net employment gains were actually slightly higher than expected. So there's no reason the news should be viewed as negative or disappointing. In fact, when you dig into the numbers and include the household survey in your dataset, the news continues to be mildly encouraging. The chart above focuses on gains in private sector employment, and what stands out is that the household survey continues to pick up more jobs than the establishment survey. This is fairly typical in the early years of a recovery, since the household survey is better at finding new startup companies and people who have gone to work for themselves. The establishment survey only surveys companies that have been in existence for awhile. According to the household survey, things have really improved over the past year.
According to the household survey, the private sector has added about 5 million jobs since the low in employment at the end of 2009; that works out to an annualized gain of 1.9%. But over the past year, the household survey shows a gain of 3 million jobs, which is a gain of 2.5%. The chart above shows the 6-mo. annualized gain in private sector jobs according to each survey, and here we see how the pace of jobs growth has picked up of late, especially in the household survey. If you just split the difference between the two, private sector jobs growth now equals or exceeds the best years of the prior business cycle (which doesn't say all that much, since it wasn't a very robust growth cycle). Jobs growth is going to have to pick up a lot more, of course, before the economy can begin to get back on track, but at least we continue to make progress towards that goal.
As an aside, here's an updated version of the chart from yesterday's post. With the upward revisions to the BLS numbers released today, it now looks like ADP's jobs number has been pretty close to the BLS. In fact, ADP has consistently underestimated private sector jobs growth, but not by much: year to date, the ADP total is +730K, while the BLS reports 827K., for a monthly difference of only 24K. That's a mere rounding error for this data. Same goes for the past year, with ADP reporting +1.85 million, and the BLS +2.03 million, for a monthly difference of only 16K.
Other than the fact that this recovery has been fairly tepid given the depths of the prior recession, this recovery stands out as being the first during which public sector jobs have taken a serious hit. This is painful for those involved, of course, but it is very encouraging from a macro perspective, because the public sector has enjoyed disproportionate gains over the past decade. As the chart above shows, the private sector has experienced only a very small gain since early 2000, while the public sector, after losing about 700K workers since the 2009 peak, is still 7% larger than it was at the beginning of 2000. If our fiscal house is going to be put in order, the public sector is going to have to slim down even more in the years to come. And that is especially true for compensation (including pension benefits), since numerous surveys now show that public sector employees enjoy substantially higher pay than their private sector counterparts.
Overall, I'd say that the news today was mildly encouraging. So far, however, the market seems to be disagreeing with me, with stocks down and bond yields down. But with the economic fundamentals continuing to improve, albeit only modestly, the market should eventually reconsider and reverse today's action.
Posted by Scott Grannis at 6:52 AM