Unemployment numbers – what do they really mean?

Last Friday’s national payroll gain of 88,000 jobs seemed to be one of the lowest we’ve seen since Fall 2010.

The drop in the official ‘headline’ unemployment rate from 7.7% to 7.6% was entirely driven by a further decline in the labor force participation rate, to a 35-year low of 63.3%. The portion of the population that is employed actually dropped again, from 58.6% to 58.5%. The last time we saw the participation rate of the unemployment survey this low was during the Carter administration.

It is interesting that the actual number of people employed can decline, yet the headline rate suggests that unemployment improved. I looked up the historical numbers and came across this chart.

PAYEMS-monthly-revisions-since-2000

This chart shows employment numbers since January 2000 and plots the change from the first to third estimate for each month through January 2013. The y-axis represents percent change. During this timeframe there were 91 upward revisions and 63 downward revisions. The absolute mean (average) revision was 46 thousand, which breaks down as 48K for the upward adjustments and 44K for the downward adjustments. Interestingly enough, the direction of revisions was upward during the brief recession of 2001, but downward during the nasty recession from December 2007 to June 2009.The message is clear: Don’t take the initial monthly employment jobs data too seriously.

Still, it’s clear the economy is not back to full health, not with unemployment at 7.7% and with 3 million fewer jobs than when the recession began. Another weak economic sign emerged Thursday. Applications for unemployment aid rose last week by 28,000 to a seasonally adjusted 385,000 according to numbers published by the Bureau of Labor Statistics. That’s the highest level since late November. The gain pushed the four-week average, a less volatile measure, to 354,250, and pounded home a lesson about the economy. The much slower pace of job gains in March may foreshadow a slowdown in payroll growth over the next few months as fiscal contraction at the federal level begins to bite. Employment gains reported in the household survey show an even bleaker picture of the job market. The number of adults in the household survey who report holding a job fell 206,000 in March, capping a 5-month period in which reported employment losses have averaged 34,000 a month.

As we discussed a month ago, jobs aren’t roaring back. But after five painful years, the American economy is nearly back to where it started when the recession began. Although the recession officially began in December 2007 and officially ended in June 2009, the lingering effects can still be felt. I thought it would be advantageous to look at ways in which the economy has returned to pre-recession levels and ways it hasn’t, and what this analyst sees the effects locally.

Household wealth

Americans lost $16 trillion in wealth during the recession, mainly because home values and stock prices sank. Those losses have now been reversed. Household “net worth” reached $66.1 trillion in the final three months of 2012, according to the Federal Reserve. This is over 98% of pre-recession household wealth, surely a good sign of a healing economy.

Household wealth, or net worth, reflects the value of assets like homes, stocks and bank accounts minus debts like mortgages and credit cards. National home prices have continued their gains this year in most markets. And the Standard & Poor’s 500 index, a broad gauge of the stock market, has surged 8% so far this year. Some economists and analysts caution that the recovered wealth might spur less consumer spending than it did before the recession. Since the housing bust, when home values fell broadly for the first time in decades, many homeowners are skeptical that higher prices will last. Americans are now less likely to use the equity in their homes to fuel spending. The value of home equity Americans are cashing out has fallen 90% in six years. The question is, will the gains help support the economy, and will they lead to further spending and growth?

Here in the Texas region it seems so – car sales, homes sales, and appliance sales have all improved as shown by the Texas comptroller’s numbers. If anything, the national news continues to be a concern as so many consumers move from other markets and are forced to delay buying decisions because of a stagnant economy from where they moved from.

Retail sales continue to improve – there was a slowdown in March as lack of progress in the labor market affected consumer’s confidence and made it difficult for Americans to continue spending. Economists and analysts point to the lagging consumer confidence index over the last few months. After improving for a number of months, it is down again below 70 (90 to 100 is sign of a good economy).

Even with that, national retail sales totaled $421.4 billion in February. Adjusted for inflation, that was nearly 18% above the recession low.

In January 2013, employers cut 1.5 million jobs — the lowest monthly total in 12 years. That explains why the number of people seeking first-time unemployment benefits each week plummeted. That number reached 667,000 one week in March 2009, the most in nearly 25 years. The number of workers in Texas who lost their job in mass layoffs rose slightly in 2012 after declining in the previous two years, according to data to be released later today by the U.S. Bureau of Labor Statistics.

In 2012, Texas employers laid off 69,068, up slightly from 68,500 people in 2011. However, the number of laid-off workers in 2012 remained well below the recent peak of 108,452 in 2009 during the recession.

2013 has started with concern over sequester and defense budget cuts in Texas. Over the next ten years they will be well over a billion dollars in budget cuts, a major concern for those bases and cities in Texas. Texas presently has the largest share of the budget cuts, focused primarily on Fort Bliss in El Paso and Fort Hood in Killeen. The potential good news is that Texas happens to be one of the brightest spots in the nation for employment.

Foreclosures

Foreclosure rates since the start of 2013 have sunk back to pre-recession levels. Banks repossessed 45,000 homes nationally in February 2013, according to RealtyTrac. That was the fewest since September 2007, and was down from a peak of 102,000 in March 2010.

Foreclosures in the Texas region through the recession were less than 2% of sales, compared to Georgia: 43% of all residential sales, Nevada: 43%, California: 40%, Michigan: 35%, Arizona: 33%, Illinois: 27%, New Hampshire: 24%, Colorado: 22%, Wisconsin: 22%, Minnesota: 22%, Oregon: 21%, Florida: 21%. Those states have foreclosure problems.

GDP

Late in 2007, the U.S. economy produced at an annualized rate of $13.3 trillion in goods and services, a record high. In the final three months of 2012, GDP was $13.7 trillion. The US economy didn’t contract in the fourth quarter after all, but the bigger picture remains the same: It’s still slower than needed, but improved. Most economists feel that the economy needs to grow around 3% a year to bring unemployment down by one percentage point. The national unemployment rate is 7.6%, while the Texas unemployment rate was 6.3% for January 2013. The Texas unemployment rate has been at or below the national rate for 73 consecutive months.

The good news is that GDP seems to be back on track nationally, with 2.5% growth forecast through 2013.

Auto sales

Auto sales have lagged for the past five years. Before the recession, sales of new autos and trucks were at an annual rate of nearly 16 million in December 2007. Sales plunged to 10.4 million in 2009. In March of 2013, the annual sales pace was 15.3 million.

Another good sign was truck sales improvement, which is typically a harbinger of small business improvement. And yes, auto and truck sales in Texas have led the rest of the nation.

What’s still struggling? – Jobs

This discussion started with inquiries about last week’s apparent improvement of unemployment rates. Realize the recession eliminated 8.7+ million jobs. There are now 11.7 million unemployed workers, based on the BLS monthly survey of businesses. However, as we have noted before, BLS figures do not reflect real unemployment.

The BLS counts only those workers who are actively looking for employment, which can vary fairly widely month-to-month due to workers voluntarily removing themselves from the labor force. The BLS also does not include in the civilian labor force “marginally attached workers” (currently 2.3 million workers) who, while wanting and available for jobs, have not searched for work in the past four weeks but have searched for work in the past 12 months. Included among marginally attached workers are 0.8 million “discouraged workers” who did not look for work specifically because “they believe there are no jobs available or none for which they would qualify.”

In addition, the BLS does not include among unemployed workers the 10 million workers who are of “part-time-of-necessity” – the “underemployed” who are unable to find full-time jobs or who’ve had their hours cut back, now 7.6 million workers

When the recession began, the ‘headline’ unemployment rate was 5%, now, it’s 7.6%. The unemployment rate is well below the recession’s peak of 10% in October 2009, but far above the 5-6% range associated with a healthy economy. A truer picture of the labor market is the BLS U6 number, which In March 2013:

Texas total nonfarm employment increased by 10,400 jobs during January 2013. Between January 2012 and January 2013, Texas total nonfarm employment increased by 2.9%.

The Texas unemployment rate was 6.3% for January 2013. The Texas unemployment rate has been at or below the national rate for 73 consecutive months.

Housing continues to improve, but has a ways to go

Resale homes sold in February at a seasonally adjusted annual rate of about 4.98 million. An annual rate of about 5.5 million would be healthy. In the recession, sales had bottomed at 3.8 million. Lack of inventory continues to be the biggest obstacle with current inventory being burned through quicker than replacement can come on the market. In Texas, particularly in high demand areas, it is very apparent and highly competitive with little to no inventory and tremendous uptick in buyers. However, it is still far away from the top of the market in 2005-06 in all four Texas metros.

New homes continue to see improvement. Last month builders began work on a seasonally adjusted annualized rate of 917,000 homes. That’s way up from a recession low of 478,000. But it’s still far from a healthy annual rate of roughly 1.5 million, or the top of the market at 1.9 million. Prices have risen nearly 9% since bottoming in March 2012, according to the Standard & Poor’s/Case-Shiller index, but they remain 29% below their pre-recession peak. The demand for new homes in turn has helped the construction industry, which has been one of the nation’s foundations of a true economic recovery. The good news is the four major Texas metros, plus a couple other cities, continue to lead the nation in new home production.

It’s important to follow the national unemployment number, but ultimately, it is what is happening in your own market and submarket that makes a difference. The main numbers we should be interested in is our local metros, which continue to be stellar compared to the rest of the nation. I follow U6 BLS numbers more closely than the headline rates. This is available to you at the BLS website, or you can ask us. Local, metro, state, and regional statistics are more indicative of what is happening in your local economy – and it continues to look good for Texas.

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