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Calculated Risk

The Bureau of Labor Statistics reported that job openings decreased in November to 10.6 million from 11.1 million in October (yellow line in above graph).

It’s a sign that more workers are returning to work. So huge is the U.S. job market that hiring rose by 191,000 jobs to 6.7 million in November. The hiring rate rose to 4.5 percent from 4.4 percent in the prior month.

The BLS said:

“On the last business day of November, the number and rate of job openings decreased to 10.6 million (-529,000) and 6.6 percent, respectively. Job openings decreased in several industries with the largest decreases in accommodation and food services (-261,000); construction (-110,000); and nondurable goods manufacturing (-66,000). Job openings increased in finance and insurance (+83,000) and in federal government (+25,000). The number of job openings decreased in the South and Midwest.”

This suggests that hiring in both the service and manufacturing sectors is picking up, a good sign for continuing job growth in 2022.

The number of job openings (yellow) were up 56 percent year-over-year. Quits were up 37 percent, year-over-year. The JOLTS report showed that people quitting their jobs rose by 370,000 to 4.5 million in November.  The quits rate rose to 3 percent from 2.8 percent in October, matching the highest quits rate of the pandemic era.

The U.S. unemployment reports comes out this Friday and will give a better picture of the New Year, but the JOLTS report gives a preliminary indication, though it lags almost one month behind the unemployment report.

Another indicator of future job prospects is the decline in weekly initial jobless claims for unemployment as unemployment benefits expire.

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Weekly claims are down from their high of 6 million during the pandemic to 198,000 in the latest week. Salaried employees can’t wait much longer to return in greater numbers in the New Year after spending the excess savings accumulated during the pandemic.

Nobel laureate Paul Krugman has the last word this week in a recent NY Times column, in comparing the swiftness of this jobs recovery to President Reagan’s 1982 recovery which Reagan called “morning in America” that boosted his 1984 reelection.

“Yes, by this measure (and many others) we’re in the middle of another morning in America, despite the drag caused by a lingering pandemic and supply-chain disruptions,” said Professor Krugman.

With this kind of a jobs recovery, what should economic growth look like going forward?

The Atlanta Federal Reserve’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 7.4 percent on January 4, down from 7.6 percent on December 23, says their press release.

So overall, 2021 real GDP growth could be upwards of 5 percent. The last time it reached this height was in the 1980s. And since this is the beginning of another year, we can call it the morning of a successful 2022 New Year.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Why the feverish speculation that higher inflation could last beyond next year, and dampen economic growth, when the American economy should otherwise return to a semblance of normalcy? The COVID-induced recession of 2020 lasted just two months and caused one of the deepest economic contractions in history.

The recovery is also one of the fastest in history, so it is causing a temporary climb in inflation. Firstly, consumers and businesses are flush with cash for the holidays. Why wouldn’t they want to spend it now, regardless of the rising prices sure to follow? Expectations are usually high during the holidays.

In May 2020 the CPI, seasonally adjusted inflation rate for consumers was a mere 00.22 percent and in November 2021 had risen to 6.9 percent, seasonally adjusted. But there is usually a New Year drop off in spending because consumers want to pay down their credit bills and save for the April tax season. So prices should also subside substantially, as most retail businesses know after the holiday shopping splurge.

There are a few caveats to this forecast, however. The Biden administration is not helping to lower inflation by reducing the Trump trade tariffs. Raising tariffs made more sense when the economy was booming before the pandemic, and we wanted to repatriate U.S. businesses to our homeland to boost American jobs.

But if the supply-chain slowdown is to be improved, smart economic policy says that tariffs should be lowered to increase the flow of international trade, and ease the supply bottlenecks.

Also, Biden’s ‘Buy America”, and “Made in the USA” emphasis will certainly keep prices from falling faster with products made in the USA, as it’s more expensive to produce things in America, vs. overseas.

But is that a reason for markets to panic, so that the Federal Reserve may overreact by raising interest rates too soon next year? I don’t think so.

Economists such as Larry Summers worry about what is called “stagflation”, a holdover from the 1970s fast rising prices for oil and other commodities that caused unions to follow suit and the Federal Reserve to maintain policies (such as keeping interest rates low) that tolerated higher wages and salaries.

That’s not the case anymore, mainly because unions are much weaker so that wage and salary increases have been kept down, which is a large part of any inflationary spiral.

So the other causes of higher inflation—supply-chain bottlenecks and a shortage of workers—could still be problems.

Nobel Laureate Paul Krugman cites Biden’s Council of Economic Advisors in a recent NY Times Op-ed who believe that this bout of higher inflation most resembles that of 1946-48, when the American economy hadn’t yet geared up to meet soaring consumer demand when also flush with cash from WWII savings.

But there won’t be such a wholesale conversion from a wartime to a peacetime economy in the pandemic recovery. In fact, we will be fast forwarding to an enhanced digital economy with much more reliance on 5G networks and Artificial Intelligence, and less dependence on workers to produce things.

As if to presage such a future the Conference Board’s latest Index of Leading Economic Indicators predicts good growth ahead, with or without the availability of more workers.

“The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 1.1 percent in November to 119.9 (2016 = 100), following a 0.9 percent increase in October and a 0.3 percent increase in September,” stated its latest press release.

“The U.S. LEI rose sharply again in November, suggesting the current economic expansion will continue into the first half of 2022,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Inflation and continuing supply chain disruptions, as well as a resurgence of COVID-19, pose risks to GDP growth in 2022. Still, the economic impact of these risks may be contained. The Conference Board forecasts real GDP growth to strengthen in Q4 2021 to about 6.5 percent (annualized rate), before moderating to a still healthy rate of 2.2 percent in Q1 2022.”

This prediction of a huge jump in future growth is based on 12 hard data indicators such as stock prices, interest rate spreads, and consumer credit flows, which lends more credence to its prediction of future trends—and to the fact that supply-chain disruptions and future employment trends may not be major factors affecting inflation next year.

So worrying about some kind of long-lasting inflationary spiral doesn’t make sense to me

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Popular Economics Weekly

Calculated Risk

Are we nearing full employment, at least among of those that want to return to work? That may be a strange question to ask when the just-arrived Omicron COVID variant is creating more uncertainty about future US job growth.

But the latest unemployment surveys out today showed that the unemployment rate dropped to 4.2 percent from 4.6 percent, and 537,000 more workers joined the labor force.

I like the Calculated Risk graph above that portrays where we are in the job recovery from 2020 peak employment (red line). We are fast approaching what was full employment then, as opposed to the slow job recovery from the 2007 Great Recession (blue line).

However, just 210,000 new payroll jobs were added to payrolls in the separate Establishment survey, which is seasonally adjusted, and means 210,000 more jobs were created above what is normal for this time of year.

“Total nonfarm payroll employment rose by 210,000 in November, and the unemployment rate fell by 0.4 percentage point to 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and business services, transportation and warehousing, construction, and manufacturing. Employment in retail trade declined over the month.”

But the change in total nonfarm payroll employment for September was revised up by 67,000, from +312,000 to +379,000, and the change for October was revised up by 15,000, from +531,000 to +546,000, so employment in September and October combined is 82,000 higher than previously reported.

We are nearing full employment because most of the job increase was in leisure and hospitality, which had lagged job creation in the durable goods sector earlier in the recovery.

The leisure and hospitality sector gained 23,000 jobs in November. In March and April of 2020, leisure and hospitality lost 8.22 million jobs, and are now down 1.33 million jobs since February 2020. It has now added back about 84 percent of the jobs lost in March and April 2020, says BLS.

MarketWatch

Construction employment increased 31,000, and manufacturing also added 31,000 jobs. State and Local education lost 16,000 jobs, seasonally adjusted, which was a major reason fewer Establishment survey jobs were created.

Nonfarm employment has increased by 18.5 million since April 2020 but is down by 3.9 million, or 2.6 percent, from its pre-pandemic level in February 2020.

So which of the two Labor Department’s surveys—the Establishment vs. the Household surveys—is the most accurate picture of U.S. employment? The Household survey also showed a much larger 1.14 million people found work in November, though it is a smaller survey than the Establishment survey and isn’t seasonally adjusted.

The Labor Department also reported that In November, 3.6 million persons had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the four weeks preceding the survey due to the pandemic.

So COVID-19 is still putting a big dent in the employment picture, and we must now wait to see what happens this winter with any new variants, to see if the COVID-19 pandemic is tamed and we are able to return to full employment.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Financial FAQs

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Why aren’t more Americans returning to their old jobs? Many are becoming self-employed, thanks to the pandemic that encourages more work from home, and the Internet with its many marketing opportunities.

The Wall Street Journal reports that 10.2 million workers in October, seasonally adjusted, have become self-employed.

“That is the highest total since the financial-crisis year 2008, except for this summer. The total amounts to an increase of 6% in the self-employed, while the overall U.S. employment total remains nearly 3% lower than before the pandemic,” says WSJ.

So maybe the problem isn’t so much that many Americans are retiring, or holding out for better jobs, but that many are finding different career paths. More than 50 percent of Millennials aged 18-22, for instance, have begun their careers self-employed, according to Upwork, Inc.

The use of remote freelancing has also dramatically increased because of the pandemic and will continue to rise in the future, says Upwork. The change to fully remote workforces has led to changes across organizations, far beyond where their workforce is located.

In fact, 67 percent of businesses reported that there were more changes to long-term management practices than a normal year, excluding temporary pandemic-led changes.

“Remote work has become, what economists call, a general-purpose technology,” says Upwork Chief Economist Adam Ozimek. “It has a wide range of uses that is embraced across the economy and creates a variety of spillover effects and we are already seeing the signs of these effects. The embrace of a more fully remote workforce has enabled businesses to embrace new technology, reimagine how they onboard and train, and even allowed hiring managers to embrace the use of freelancers.”

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And today’s ADP payroll report said private sector employment increased by 534,000 jobs from October to November according to the November ADP® National Employment ReportTM.

This could be a predictor of the official Labor Department report on nonfarm payrolls out this Friday. The above graph show there hasn’t been much variance between the ADP and BLS government reports. If Friday’s BLS report is similar, it is more good news for the recovery.

“The labor market recovery continued to power through its challenges last month,” said Nela Richardson, chief economist, ADP. “November’s job gains bring the three-month average to 543,000 monthly jobs added, a modest uptick from the job pace earlier this year. Job gains have eclipsed 15 million since the recovery began, though 5 million jobs short of pre-pandemic levels. Service providers, which are more vulnerable to the pandemic, have dominated job gains this year. It’s too early to tell if the Omicron variant could potentially slow the jobs recovery in coming months.”

All-in-all, contrary to the pundits that are predicting another downturn because of rising inflation (or the latest Omicron variant), more American workers are returning to work, either as employees or self-employed.

And supply chains are easing, according to various reports, with anchored shipping waiting to offload to the LA and Long Beach ports down more than 20 percent in just the last week, according to the White House, which will ease supply-chain and inflation worries as well.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen