Saturday, April 5, 2014

March 2014 Employment Report Review

Here are updates on a few of the indicators I have been following.

First is unemployment, by duration, from the household survey.  I expected to see a sharper drop in long term unemployment, coming off of the termination in emergency unemployment insurance.  I expected it to mostly reflect stronger employment numbers, along with some attrition out of the labor force.  The recent data revisions for the state-level numbers from North Carolina suggested that labor force attrition would be the larger factor.  Of course, these data are noisy, especially when dealing with sub-categories, like state-level numbers or unemployment by duration.  Lo and behold, the national numbers are telling the opposite story of the North Carolina numbers.  In the 3 months since the end of EUI, we have seen relatively strong employment, but that hasn't led to a lower unemployment rate because we are seeing a rebound in labor force participation.

Here is my indicator for the rate at which workers unemployed for more than 15 weeks leave unemployment over the next 3 months.  This is rising nicely, although, again, I had hoped that we might see more of a continuation of the jump in January, coming out of the EUI termination.  That would have pulled unemployment over 26 weeks from 3.6 million in January down to 3.3 million in March.  Instead, long term unemployment bounced back up to 3.7 million.

Finally, here is an update of a graph I have that compares inflation adjusted wages to the unemployment rate (through February).  Wage behavior in this business cycle was very unusual.  Wage growth remained too high, compared to the unemployment rate.  I suspect that this has to do with the fact that this is the first recent recession that experienced such high unemployment levels during a period of generally low inflation.  Nominal wage stickiness may have been more of a problem in this environment.  Wage growth is now tracking in the same direction as unemployment.  This is another indicator I would expect to show some convergence this year, with wage growth leveling off, at least temporarily, and unemployment falling back to a more typical relationship.

On the whole, reported labor force participation has rebounded back from the lows at the end of 2013, and is now at the same level as it was in September.  That means that over 6 months, we have seen a decline in unemployment of 1/2%, with no decline in labor force participation.  That's the kind of movement that I think we will continue to see if the economy continues to recover this year, although my hope after the January report of 5.5% by December is looking too optimistic now.  But, in the six months since September, from the household survey, the labor force has grown by more than 700,000 workers, consisting of about 1.5 million more employed workers and about 700,000 fewer unemployed workers.  That's solid momentum.

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