The first labour market report for 2014 showed no change from the trend of 2013. Employment growth continued to deteriorate and unemployment continued to grind higher. There was one bright spot in this report – the monthly declines recorded in aggregate FT hours had slowed in the latest month.
Some key points:-
- For the month of Jan ’14 (v Dec ’13), total employed persons declined by -1.5k persons, driven by a decline in FT employed persons of -9k persons. This was the sixth month in a row where total employed persons declined month on month
- Annual growth of total employed persons was only +29.2k persons. By comparison, the average annual growth in total employed persons over the last ten years in January is+208k persons. At the worst point of the GFC, annual growth in total employed persons was +22k (August 2009)
Looking at the longer term trend in total employment growth, it’s clear how close we are to GFC lows, but it’s also clear that we are a long way from the depths reached during the recessions of the early 80’s and early 90’s. But that doesn’t make the current trend any less concerning.
What is driving the decline in employment is the decline in full-time jobs and now, even slower growth in part-time jobs. Again, looking at the longer-term trend provides some benchmarks as to the current level of labour market weakness.
1) full-time jobs decline of -71k in Jan ’14 is on par with the slow-down of 2000/01, is approx. half that at the worst point of the GFC (which was -145k FT jobs) and about one third of the decline in the recession of the early 90’s (-200k).
2) part-time jobs growth of +100k in Jan ’14 is below that of the peak reached during the GFC (+176k PT jobs at Aug ’09) and below the peak reached during the slow-down of 2000/01 (+163k in Jan ’02). During the recession of the early 90’s there were two peaks in PT employment growth (+145k in Sept ’89 and +117k in Sept ’92). Benchmarking PT employment change against the recession of the 90’s is difficult because PT employment has grown since then – PT represented approx. 21% of total employed persons back in the early 90’s, whereas it represents just over 30% today.
The longer term view also highlights how the employment measures of FT and PT change during a slow-down or a recession. Full time employment growth tends to slow and part-time employment tends to grow much faster – the two measures tend to move in opposite directions during a slow-down. These peaks and troughs are clear on the chart above. Both measures appear to grow together during economic expansion.
It’s interesting to compare the annual change in total employed persons to the annual change in total unemployed persons in order to get a sense of the scale between the two measures – as a trend rather than as a static view (first chart in this post). The growth in total unemployed persons in Dec and Jan of approx. +62k persons has exceeded the growth in total employed persons for the same two months (+49k and +29k for Dec & Jan respectively). According to the chart below, this has only happened four (4) times previously:-
Growth in unemployed persons continues to grind higher, but hasn’t accelerated over the last five (5) months. Annual growth in unemployed persons reached a peak of +71k persons back in May & June 2013 and has grown by approx. +60k each month since July ’13. The unemployment rate has now ticked up to 5.9% (from 5.8% in the previous 3 months).
I tend not to quote the unemployment rate when trying to gauge the performance of the labour market. One factor that is currently skewing the view of the unemployment rate is the declining Labour Force Participation Rate (LFPR). The LFPR has declined for nine (9) months in a row now.
Why is this important? It means that the size of the labour force, relative to the size of the population is getting smaller. The Labour Force is defined as total persons employed plus total persons unemployed and looking for work. There are several reasons why people would leave the labour force, but the main ones are either retirement, further education or discouraged job-seekers. Understanding which one of these factors is driving the trend is important – as there can be different implications. As mentioned, this will be a topic for a separate post. Until we understand the drivers or combination thereof, it’s misleading to think of all workers dropping out of the labour force as discouraged. This is the method some use to arrive at “what the unemployment rate would have been if the LFPR hadn’t declined”. The assumption underlying this is that the entire decline in the LFPR is due to discouraged workers. So the difference in the size of the labour force is added to the total number of unemployed persons. Just for curiosity though, if the LFPR in Jan 2014 did stay the same as Jan 2013, and they were all discouraged workers, then the unemployment rate could have been as high as 6.8%.
Growth in part-time hours continued to accelerate and is now over +6% – which is neither unusual during a weaker economy nor is it a new trend in this most recent series (see chart below). The one bright spot is that full-time hours have at least not commenced a decline on an annual basis.
Month on month, full-time hours have declined for the last 6 months in a row. But this trend does seem to be slowing down – below is the actual aggregate FT hours worked over the last year:-
Full time hours peaked in Jul ’13 and have declined, month on month since then. But aggregate FT hours are still higher than for the same time last year. How to reconcile no growth in FT hours between Dec & Jan with the corresponding decline of -9.7k FT employed persons in the same time period? Less FT workers doing the same number of FT hours. Hopefully it means that demand isn’t weakening (still required to maintain the same number of hours to produce output) and there will be at least a slow-down in the rate of decline of FT employed persons in the near future.
Overall though, the majority of the growth in total hours worked is coming from PT employment. For example, over the last quarter (versus the same quarter last year), total hours grew by 46k hours. Of this, aggregate PT hours grew by 44k hours (+6.1%) and aggregate FT hours grew by only 2.5k hours (+0.06%). The situation is identical whether you look at annual or monthly growth in hours.