The Bigger Picture on US Jobs
Last month, I explained why weak US jobs numbers for March shouldn’t be taken at face value. Since then, we’ve had another month of disappointing employment data—and I have some more evidence to suggest that the underlying trends are better than you might think.
Based on data from the US Bureau of Labor Statistics (BLS), job growth slowed in March and April from a robust pace early in the year. People also appear to be leaving the labor force. Both trends suggest that the US economy may be losing momentum. However, I think preliminary employment figures don’t tell the whole story and that you really need to wait for revisions to get a more accurate picture of underlying trends.
In April, payroll employment rose by 115,000, according to the BLS. That fell short of the consensus estimate of 150,000 and was the smallest jobs gain since August 2011. But initial payroll estimates are based on only a sample of business establishments, and are revised in the following two months.
History shows that when economic conditions are improving, the revisions are upward, and when conditions are deteriorating, the revisions are negative, as the display below shows. Since last August, the initial payroll employment estimate was revised upward for eight consecutive months.
I also look at the BLS Job Openings and Labor Turnover Survey (JOLTS), which is released with a one-month lag and enables us to create a proxy for job growth by calculating the monthly difference between new hires and separations (such as retirements and layoffs). This measure is highly correlated with the payroll employment data, but the monthly pattern may differ. In the first quarter, the JOLTS report showed job gains of 222,000, 320,000 and 203,000 in January, February and March, respectively. Over the same periods, payroll job gains fell from 275,000 to 259,000 to 154,000. So, in aggregate, the JOLTS data showed 57,000 more job gains in the quarter than the payroll data did, and its monthly pattern was more robust.
Labor-force data have also raised concerns. In April, the US civilian labor force fell by 342,000, just one month after a decline of 164,000 in March, according to the BLS. But in January and February, the labor force increased by 984,000—one of the largest two-month gains in the past 20 years. Based on date from January through April, the annualized rate would be 1.43 million—close to the 1.5 million rate that many analysts consider to be trend growth for the US workforce.
I also suggest waiting until May and June figures come out before drawing conclusions about labor-force trends. These two months capture students looking to start part-time summer work and graduates who enter the workforce seeking permanent employment.
Markets today are impatient because we all want evidence that the US economic recovery is here to stay. But when it comes to employment data, short-term readings can be deceptive. Even in solid growth years, employment gains are never linear, and I think this year will be no exception.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.
Joseph G. Carson is US Economist and Director of Global Economic Research at AllianceBernstein.