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The Plow Horse Economy Keeps Moving Forward



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Something for everyone in today’s jobs report. Data that was weaker than the consensus expected (the payroll report) had strong details, while data that was stronger than expected (the unemployment rate) had weak details.

Nonfarm payrolls increased 169,000 in August but only 95,000 including downward revisions to June/July. Very mediocre. However, average weekly hours ticked up and, as a result, total hours worked were up 0.4 percent in August. If the number of hours per worker were unchanged, a 0.4 percent gain in total hours would mean a 450,000 gain in payrolls. So we don’t think today’s report indicates a lack of demand for labor.

The unemployment rate dropped to 7.3 percent, the lowest so far this recovery, but it was the result of a 312,000 drop in the labor force. Civilian employment, an alternative measure of jobs that includes small-business start-ups, declined 115,000. As a result, the labor-force participation rate fell to 63.2 percent, the lowest since 1978. It’s important to note, however, that the population keeps increasing, so even though the participation rate is so low, the labor force itself is up 718,000 in the past year even as the unemployment rate has dropped 0.8 points.

One recent debate is about part-time work. Through July, part-timers were up 692,000 so far this year, a very large share of job gains in 2013. However, part-timers were down 123,000 in August. Either way, we think part-time data need to be handled carefully given volatility. We prefer looking at it over periods of a year. In the past twelve months, part-timers have increased 253,000, which is only 13 percent of all job gains.

However, we can’t help but notice that some of the largest recent payroll gains have been in sectors that lend themselves to part-time jobs. Retail and restaurants and bars, combined, now make up the largest share of private payrolls on record (going back to 1990) with a recent surge that started in April. Only time will tell for sure, but it’s hard to believe Obamacare has nothing to do with this. Firms in these sectors may be adding more jobs as a result, but doing it with part-time work.

In terms of consumer spending, in the past year hours are up 2.4 percent while wages per hour are up 2.2 percent, for a 4.6 percent gain in cash earnings. After adjusting for inflation, these earnings are up 3 percent from a year ago, so workers are generating more purchasing power.

Obviously, the labor market is far from perfect. What’s holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.



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