Friday, May 8, 2015

A decent April jobs report

The April jobs report was widely viewed as pushing the Fed's "liftoff" at least several months into the future. Although it came in close to expectations (223K vs. 228K), downward revisions to February and March dampened enthusiasm. But that's old news—we knew the economy was weak in the first quarter. What counts is that jobs growth has bounced back and the economy is not sinking: the slump is behind us, as I noted earlier this week. So on balance I think this was a decent report. 

Jobs growth bounced back in April, following a slump in March, much as I anticipated. We'll probably see a stronger report next month. These things happen; what's important is that the economy's fundamentals haven't changed. It's still the slowest recovery on record, but the economy does continue to expand.

The current pace of jobs growth is within a range of 2 - 2.5%, which is very much in line with what we have seen the past several years. There's a hint of improvement in the past six months, during which the annualized pace was 2.6%. If this continues, the Fed will be in liftoff mode within months.

One very encouraging thing is the lack of growth of public sector jobs—no growth at all for the past nine years, in fact, opposite a gain of almost 6 million private sector jobs over the same period (see the first of the above two charts). This has contributed to the decline in federal spending as a % of GDP (now only 20.5% vs. 24.5% six years ago), and it is giving more space for the private sector to grow, which in turn augurs well for future productivity gains. That would be a very good thing, since, as the second chart above shows, productivity has been miserably weak for several years running. What the economy really needs is a confidence boost, and increased business investment. Cutting the corporate tax rate seems like a no-brainer that only Washington can fail to appreciate. 

Even though this is the weakest recovery on record, it's now set a new record for job security: the lowest ratio of weekly unemployment claims to the workforce. A typical worker is less likely to lose his or her job today than at any time in the past 50 years. Downside risks have declined measurably, but we're left wondering how long it will take policymakers to discover the key to unlocking the economy's tremendous upside potential.


Benjamin Cole said...

The best tax cut now is a FICA tax cut. Profits are at all time record highs absolutely and relatively. Great! Theses are the good 'ol days for Corporate America and I love it.
The incentives are there--the demand?
A FICA tax holiday would boost incentives to hire and work.
Of course, in past 50 years corporate income taxes have shrunk dramatically as a percent of federal revenues. FICA taxes have ballooned and become burdensome and anti-worker and anti-business.
But as Senator Russell Long from Louisiana used to say, "Don't tax you, don't tax me; tax that man behind that tree."

Joseph Constable said...

Policy makers will not change anything. They can’t because the process of concentrating economic power continues right along with concentrating political power. Prices will goes higher, especially rents, while automation, immigration, H1B visas, and off-shoring, keeps wages down, if not actually decimate them in the future. I am thankful for the growth of jobs that we do have in the US but the era of a healthy middle class is over for good. But a really vibrant upper middle class will flourish. They will be educated people in the right industries at the right time. Be a dentist, airline pilot (not with a feeder service), CPA, or a lawyer (if you can get into a top 20 law school).

Aetna replaced most of its IT staff with Indians and yes, the laid off people had to train their replacements and sign a non-disclosure agreement in order to get a severance check. Whole Foods Market in San Francisco has directed a full-time to part time ratio of 60/40 due to the hike in the minimum wage from the 70/30 that was established because of Obamacare. I rest my case.

Benjamin, upon graduation I applied for a job as an accountant at that Firestone plant. I turned it down for a job as a broker.

Andrew Ross said...


Does your source for total Public sector employment include state and local governments including public schools?

Benjamin Cole said...

Joseph C---good call on the Firestone job. Man, those were the days. I know what the economists say, but letting the industrial base die always makes me wonder...

Scott Grannis said...

Andrew: I believe it does.

William McKibbin said...

Anyone still dreaming about a US recovery lead by industry should consider this chart:

The days of US industrial growth are over -- the future of the US is apparently in information technology (IT), financial services, and healthcare -- again, check out the chart above from the WSJ.

Joseph Constable said...

Great chart from McKibbin. IT is broad with many subsectors. I wish that could be delineated.

It includes social media and automation software, for instance. Very different sectors lumped together.