A Return To Trend With Payrolls

The private sector created a surprisingly high number of jobs last month, the Labor Department reports. Private payrolls increased 273,000, or well above the consensus forecast of 213,000 (according to Econoday.com) and substantially higher than March’s revised 202,000 advance. It’s good news, of course, but today’s upbeat release is primarily a clue for thinking that the labor market is again growing at the trend rate that prevailed before the harsh winter took a toll.

Yet let’s recognize the temptation to argue that the rate of growth in payrolls is accelerating. It’s an alluring idea…again. But it’s also premature… again, until (or if) we see similiar levels of improvement in the next several updates. Meantime, nothing much has changed in terms of the big picture. In fact, that’s the good news to focus on. Private payrolls increased by nearly 2.1% for the year through April, or slightly faster than the annual growth rates of the last several months. Arguing that the latest numbers reflect a significant upswing in job creation, however, is a stretch, at least for now.


But it’s also true that what we didn’t see is significant. Payrolls didn’t fall off a cliff; the economy’s growth engine, today’s data suggests, picked up a bit, which is to say that the recent slowdown was primarily about seasonal volatility.

If we’re fishing around for interpretations that will stand the test of time, today’s news looks like a convincing clue for assuming that the economy will continue to expand at a moderate rate. In fact, that’s what the steady ~2% year-over-year rise in private payrolls has been telling us all along. The monthly change may look like a “spring stunner”. But there’s a lot less drama here than the headlines suggest.

The best we can say at this point is that the modest healing rolls on. Indeed, that’s the upgrade for the macro outlook: we’re not sliding into a cyclical ditch. In fact, we never were, even during the darkest days of the economic news of recent vintage.

When you study the business cycle closely, it becomes clear that convincing signs of major trend changes are the exception. By contrast, if you spend a lot of time reading the economic updates, one at a time, without any context, it seems that the economy’s on the cusp of a new era every 20 minutes.

4 thoughts on “A Return To Trend With Payrolls

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  2. Ben Leet

    I was looking at growth trends in the labor market since 2006. The Civilian noninstitutional population grew by 8.1% (18.443 million in 8 years). It has been normal that 66% would join the labor force, but only 26% did. Also it has been normal that about 63% would find work (employment to population ratio) but only 7% (or 1.315 million) did. Here again, CNP grew by 8.1%, LF by 3.2%, E/P by 0.9%. The last eight years have been dismal for the labor market, and now in the past year private sector employment seems to be tracking OK. Here’s the BLS data source: http://www.bls.gov/web/empsit/cpseea01.htm
    Since Feb 2010, 50 months ago, 9.196 million p.sector jobs were created, that’s 184,000 per month. I calculate about 18 million out of work, to bring us back to normal LFPR. Normal LFPR growth is about 140,000 per month, of which p.sector will be 116,000 per month, so the last 50 months are 68,000 per month above normal population growth. With 18 million out of work it will take about 9 years at this rate and including a resumption of normal public sector employment, to achieve pre-2006 levels of employment — this implies normal 20 year average LFPR, E/P and U3.
    A gloomier take is to match private sector job growth with CNP growth between Dec. 2000 and March 2014, only 4.5 million private sector jobs were created, while the CNP grew by 34.7 million. Of that expected 34.7 million about 63% would find work, 21.9 million. Of the 21.9 m. some 83%, 18.3 million, would be private sector jobs. We should have expected 18.3 million private jobs created over 13 years and 4 months since Dec. 2000, but only 4.5 million were. Only 25% of normal private sector jobs were created in 13 years plus, and so we are 13.8 million private sector jobs short. This is the dismal part. In year 2000 we might have expected normal 20 year average growth, similar to 1980 to 2000, but we got something else. Instead of increasing employment by 21.8 million, total employment increased by 8.9 million, from 136.9 million to 145.7 million, a growth frate of 6.4%, about 40% of the expected amount. The economy is 12.9 million jobs short of expectation. So today’s U3 rate is 12.5%. That’s high. But today’s 6.3% seems comical to me, in light of past performance. I write a blog, http://benL8.blogspot.com

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