The Bureau of Labor Statistics employment reports, both national and regional, are fundamental to our understanding of where the various steel consuming sectors are headed. In this analysis we are examining multiple data sources to try to develop a broad base of understanding. This data complements other more specific information on construction and manufacturing activities that we routinely report in the Steel Market Update Executive and Premium publications. These two macro-economic sectors account for almost all of the steel consumption in the US.
In December net job creation was 156,000 which was down from 204,000 in November. October was revised down by 7,000 and November up by 46,000. Using a three month moving average (3MMA), the result for December was 165,000 down from 182,000 in November. Figure 1 shows the 3MMA of the number of jobs created as the brown bars since 1990.
These numbers are seasonally adjusted by the BLS. In order to examine if any seasonality is left in the data after adjustment we have developed Figure 2.
In the six years since and including 2011, December job creation has been down by 13 percent. This year December was down by 24 percent therefore this is historically not so good. This is probably pay back for the revised November which was much better than the long term average. Total nonfarm payrolls are now 6,938,000 more than they were at the pre-recession high of January 2008.
Moody’s Analytics expects the labor market expansion to persist over the next few years. The implementation of a fiscal stimulus through government spending and tax cuts is expected to boost job gains above the pace that had been expected had Hillary Clinton been elected to the presidency. Yet, there remains considerable uncertainty about the next administration’s policies. Nonetheless, the risk of recession is low. Job gains in 2017 will roughly match those in 2016 before accelerating to nearly 190,000 monthly in 2018 as more stimulus kicks in. This will drive the unemployment rate down to 4.4 percent by 2019.
Table 1 slices total employment into service and goods producing industries and then into private and government employees.
Total employment equals the sum of private and government employees: it also equals the sum of goods producing and service employees. Most of the goods producing employees work in manufacturing and construction and the components of these two sectors that we consider to be of most relevance to steel people are broken out in Table 1. In December, 144,000 jobs were created in the private sector and government gained 12,000. The Federal government gained 5,000 as state governments lost 4,000 and local governments gained 11,000. Since February 2010, the employment low point, private employers have added 15,823,000 jobs as government has shed 253,000. In December, service industries expanded by 144,000 as goods producing industries driven by manufacturing expanded by 12,000. (Same as private and government.) Since February 2010, service industries have added 13,542,000 and goods producing 2,028,000 positions. Figure 3 shows service and goods producing employment since January 1990.
The growth of service jobs has been on a tear since the recession but goods producing has made little progress in the last two years.
In December manufacturing gained 17,000 which was the best result since January 2016 but for the year as a whole lost 63,000 positions. In December total manufacturing employment was 0.4 percent less than a year ago and 0.2 percent lower than two years ago. In the last three months primary metals have been doing better than manufacturing as a whole but much worse on one and two year comparisons. Table 1 shows that in December oil and gas extraction lost 1,300 jobs bringing the total loss for the year to 9,300 positions. Truck transportation added 1,400 people in December bringing the total for the last 6 months to 19,800. This followed a loss of 9.400 in the first half of the year. Motor vehicles and parts have picked up the pace a little in the last three months with gains of 1,000, 2,000 and 3,000 respectively. Note the subcomponents of both manufacturing and construction shown in Table 1 don’t add up to the total because we have only included those that we think have most relevance to the steel industry.
Construction was reported to have lost 3,000 jobs in December with a total gain of 102,000 for the year. In spite of the weak December result, the last four months of 2016 had a total gain of 54,000 therefore there is no sign of a slowdown in the growth of construction employment.
Some of the major construction sub categories are routinely reported one month in arrears which distorts the data in Table 1. These include, industrial buildings, commercial buildings and highways and streets. Construction has added 1,199,000 jobs and manufacturing 822,000 since the recessionary employment low point in February 2010 (Figure 4).
Construction has leapt ahead of manufacturing as a job creator but the growth of construction productivity is very low (or non-existent), in contrast to manufacturing where it is very high. The difference is the difficulty of automating construction jobs.
The official unemployment rate, U3, reported in the BLS’s Household survey (see explanation below) came in at 4.7 percent which up from 4.6 percent in November. This number is very misleading and doesn’t take into account those who have stopped looking. The more comprehensive U6 unemployment rate was down from 9.9 percent in January to 9.2 percent in December, the lowest since April 2008 (Figure 5).
U6 includes workers working part time who desire full time work and people who want to work but have given up the search. The differential between these rates was usually less than 4 percent before the recession and is now down to 4.5 percent. The employment participation rate is accurately reported in the press as going nowhere. In December 2016 the rate was 62.7 percent which was the same as in January. We’re not sure that we understand what this is a percentage “of” because of the multiple descriptions of the labor pool. Another measure is the number employed as a percentage of the population which we think is much more definitive. In December this measure was 59.7 percent up from 59.6 percent in January. There has been a gradual improvement in employment to population ratio since late 2011 but this stalled in 2016 as employment gains almost exactly balanced the growth in the population. Figure 6 shows both measures on one graph.
In 2016 there was an increase of 1,645000 full time and a gain of 536,000 part time jobs. This was a marked change from 2015 when 2,669,000 full time jobs were created and 147,000 part time jobs were lost. This change probably represents a maturing job market rather than a deterioration in job quality. Figure 7 shows the rolling 12 month total change in both part time and full time employment.
This data comes from the Household survey and part time is defined as < 35 hours per week. We now include full time and part time statistics in Table 1 just to keep an eye on them. Because the full time/part time data comes from the Household survey and the headline job creation number comes from the Establishment survey, the two cannot be compared in any particular month. To overcome the volatility in the part time numbers we have to look at longer time periods than a month or even a quarter which is why we look at a rolling 12 months for this component of the employment picture in Figure 7.
The job openings report known as JOLTS is reported on about the 10th of the month by the Federal Reserve and is over a month in arrears. Figure 8 shows the history of unfilled job openings through October when openings stood at 5,534,000 with a slight declining trend this year. This is probably also a sign of a maturing job market.
Initial claims for unemployment insurance, reported weekly by the Department of Labor have continued their downward drift this year and in w /e December 31st were 235,000 with a four week moving average of 256,750. This marks the longest streak since 1973 of initial claims below 300,000. (Figure 9). The result for w/e November 12th at 233,000 was the lowest since April 1974.
The last piece of the employment puzzle that we examine is the Challenger report which measures job cuts monthly (Figure 10).
This data also tends to be quite erratic therefore again we examine a rolling 12 months and can see that job cuts increased from late 2014 through April this year, declined for seven straight months through November then rose slightly in 12 months through December. Job cuts in 12 months through December 2015 and December 2016 were 598,500 and 530,700 respectively.
SMU Comment: In the big picture, layoffs are historically low and job openings are close to all-time highs therefore there seems to be no reason for pessimism. December was the 74th consecutive month of job growth however it looks as though a gradual slowdown is occurring. The high months in 2015 were lower than 2014 and that trend continued into 2016. Manufacturing data has been disappointing this year as construction has been encouraging. Primary metals has shown signs of life in the last four months after contracting for 21 straight months. The last six months for the road hauling sector are encouraging and job losses in the oil fields have almost halted in the last four months. The results for manufacturing and construction are sign posts for steel sales activity.
Explanation: On the first Friday of each month the Bureau of Labor Statistics releases the employment data for the previous month. Data is available at www.bls.gov. The BLS reports on the results of two surveys. The Establishment survey reports the actual number employed by industry. The Household survey reports on the unemployment rate, participation rate, earnings, average workweek, the breakout into full time and part time workers and lots more details describing the age breakdown of the unemployed, reasons for and duration of unemployment. At SMU we track the job creation numbers by many different categories. The BLS data base is a reality check for other economic data streams such as manufacturing and construction and we include the net job creation figures for those two sectors in our “Key Indicators” report. It is easy to drill down into the BLS data base to obtain employment data for many sub sectors of the economy. For example, among hundreds of sub-indexes are truck transportation, auto production and primary metals production. The important point about each of these hundreds of data streams is in which direction they are headed. Whenever possible we at SMU try to track three separate data sources for a given steel related sector of the economy. We believe this gives a reasonable picture of market direction. The BLS data is one of the most important sources of fine grained economic data that we use in our analyses. The States also collect their own employment numbers independently of the BLS. The compiled state data compares well with the federal data. Every three months SMU examines the state data and provides a regional report which indicates strength of weakness on a geographic basis. Reports by individual state can be produced on request.
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