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Wall Street to Your Street
Employment Is Up, But So Is Unemployment, As Labor Force Expands
April 11, 2016 | Russ Swansen, Chief Investment Officer
In an unusual twist, the unemployment rate increased from 4.9% to 5.0% last month even though the economy added more than 200,000 jobs, according to the April employment report from the U.S. Department of Labor (Exhibit 1).
According to the April report, nonfarm payrolls were up 215,000 in March following a gain of 245,000 in February (Exhibit 2). A separate survey, similar to the "nonfarm payroll" report but with a wider definition, put the number of newly employed workers in March at 246,000.1
But the number of new jobs in both surveys fell short of the number of new individuals now looking for work. The labor force grew by 396,000, according to the report, which was considerably higher than the number of new jobs filled (less than 250,000 in both surveys).
The estimated number of new jobs for the first quarter of 2016 was 628,000, which is slightly more than the average of about 610,000 per quarter since the job market began to recover in 2011.
What is the significance for the economy?
Here are some other factors worth noting:
- Labor participation rate. According to the report, the labor participation rate of individuals in their prime earning years (25 to 54) has been rising in recent months after dropping to a record low in September 2015 (Exhibit 3).
- Close to Federal Reserve "full employment" rate. Federal Reserve Board Chair Janet Yellen recently said the Fed considers "full employment" to be 4.8%. That means the 5% estimate reported in the April employment report puts the U.S. very near the "full employment" target.
- Leading indicators are solid. We believe that these leading labor market indicators suggest that the economy is not currently headed for recession. Specifically:
- Initial unemployment claims have declined to an extraordinarily low level in recent months – particularly when factoring in population growth. While a change in direction would be more significant than the new claims level itself, recent Labor Department figures indicate that initial unemployment claims are continuing to trend downward (Exhibit 4).
- The average work week has been stable since the previous month's employment report (Exhibit 5).There are still a couple of areas within the labor market that we believe have room for improvement. For instance, the number of individuals working part time who would prefer to work full time has been improving, but still has a long way to go, in our opinion (Exhibit 6).
- But we continue to be encouraged by the steady expansion in new jobs, which is one indication that the economy remains on reasonably solid footing
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1The nonfarm jobs number – officially the "nonfarm payrolls" number – is derived from the establishment survey, which has the larger sample size and hence the smaller margin of error. A month-to-month change of about 100,000 nonfarm payrolls is statistically significant. The unemployment figure is derived from the household survey, which also seeks to tally the number of people working in the United States. It's the more expansive survey; unlike the employment survey it includes self-employed workers whose businesses are unincorporated, unpaid family workers, agricultural workers and private household workers. But the household survey also has a smaller sample size and larger margin of error. As measured by the household survey, the threshold for a statistically significant change in the number of people working is about 400,000.
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