Scenes from the August jobs report

Scenes from the August jobs report

1. The strong trend of people entering the jobs market and getting jobs remains intact

Here’s a nice graph put together by Kevin Drum at Mother Jones showing both a linear and curvilinear trend line (which are nearly identical) (red) with the prime age employment to population ratio (blue):

The trend is intact and quite positive, despite the one month decline.

2. Involuntary part-time employment is near 25 year low levels.

The below graph is of involuntary part time employment as a share of the entire labor force, from which I have subtracted 2.7% to norm the rate at zero:

Involuntary part time employment — the primary addition forming the basis of the broad U6 underemployment rate — has dropped to levels only seen for two months in the 2000s expansion, and exceeded for 3 years at the end of the 1990s internet boom.

3. But the percent of those who aren’t even looking for work but want a job remains slightly elevated and has started to increase

The below graph is of those “not in the labor force who want a job now” as a percent age of the entire labor force, from which I have subtracted 3.15% to norm the recent low from March to zero:

This has never returned to either 1990s or 2000s levels, and has risen in the last 5 months. It might just be noise, or it might not.

4. Goods-producing employment has been soaring . . . BUT

This graph comes from Matt O’Brien at the Washington Post. Goods producing jobs have recently risen at 35 year highs:

This is mainly due to two things: (1) the post-2016 recovery in the Oil Patch; and (2) truck and railcar production. The latter is *extremely* pro-cyclical, as a mere slowdown in growth at the final goods levels means a sharp downturn in the orders for new trucks and railcars to support that growth.

One important note of caution about this trend: in the past, even a two month sequential decline in the rate of growth of goods producing jobs has usually meant a sharp cyclical slowdown at minimum. I counted only 3 occasions in the last 50 years where that was not the case.

And on that note, August growth slowed down from 3.75% YoY to 3.5% YoY. Since I am expecting a sharp slowdown in the economy by about midyear next year, if a second straight month of deceleration were to be reported next month, that would be a significant yellow if not red flag.

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