Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: Jobs Friday, December 7, 2018 Today's jobs data: what you need to know Non-farm payrolls Change Nov: +155 Revision Oct: -13 Revision Sep: +1 Private payrolls Change Nov: +161 Revision Oct: +5 Revision Sep: -4 Employment Change Nov: +233 Unemployment Change Nov: -100 Long -term unemployment Change Nov: -144 Civilian labor force Change Nov: +133 0.74 million above trend More than all entrants employed Unemployment rate Nov: 3.67% Change Nov: -0.06% Underemployment rate Nov: 7.6% Change Nov: +0.2% Participation rate Nov: 62.9% Change Nov: unch UE adjusted for participation Nov: 8.2% Change Nov: -0.06% Average weeks unemployed Nov: 21.7 Change Nov: -0.8 % longterm unemployed Nov: 20.8% Change Nov: -1.7% Aggregate hours worked index Nov: 110.1 Change Nov: -0.2% Revision Oct: unch Average hourly earnings Nov: 0.22% Change Nov: 0.07% Revision Oct: -0.04% Aggregate weekly earnings Nov: 144 Change Nov: +0.1% Revision Oct: unch Monthly job-finding probability Nov: 36.6% Change Nov: +4.0% Monthly separation probability Nov: 1.6% Change Nov: -0.0% % involuntary part-time Nov: 3.1% Change Nov: +0.1% "Household" vs "Payroll" jobs Change Nov: -245 Source: Bureau of Labor Statistics, TrendMacro calculations For more information contact us: Donald Luskin: 312 273 6766 don@trendmacro.com Thomas Demas: 704 552 3625 tdemas@trendmacro.com Copyright 2018 Trend Macrolytics LLC. All rights reserved. This document is not to be forwarded to individuals or organizations not authorized by Trend Macrolytics LLC to receive it. For information purposes only; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources deemed to be reliable, but no warranty is made as to accuracy.
Today's payroll data: what you need to know -- where did the jobs come from? Sequential month change, thousands SA ---- Net job losses Biggest change per detail module: best worst Non-farm +155 Mining/logging -3 Goods-producing +29 Construction +5 Manufacturing +27 Durable goods +15 Nondurable goods +12 Motor vehicles -1 Other +16 Private +161 Service-providing +132 Federal +3 Wholesale +10 Retail +18 Transportation +25 Utilities +0 Government -6 State -13 Information -8 Local +4 Financial +6 Pro/Business +32 Edu/Health +34 Leisure/Hospitality +15 Other unch Temp services +8 Other +24 Health care +40 Education -6 Where is the pay coming from? Vertical: Hourly wages vs average Horizontal: Payrolls change this month Circle size: Share of all employment +60% Information Utilities +40% +20% Energy/Mining Financial ConstructionWholesale Pro Services -20% -40% Other Leisure Retail Manufacturing Transportation Education/Health -60% -10-5 0 +5 +10 +15 +20 +25 +30 +35 +40 Source: BLS, TrendMacro calculations Trend of job growth back towards lower-wage sectors. 2
Solving the wage-growth puzzle YOY average hourly earnings growth Atlanta Fed Wage Growth Index Recession 5% 4% Atlanta Fed Wage Growth Tracker 3% 2% Average hourly earnings 1% Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Source: BLS Current Employment Statistics, Atlanta Federal Reserve Bank, TrendMacro calculations The rewards of dynamism YOY wage growth for steady employees, versus those who change jobs Recession 5% Job switchers 4% 3% 2% Atlanta Fed Wage Growth Tracker Job Stayers 1% Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Source: Atlanta Federal Reserve Bank, TrendMacro calculations 3
The payroll cycle in the Not So Great Expansion following the Great Recession Growth MOM from July 2009-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 2018-19 +0.45% +0.35% +0.25% +0.15% +0.05% -0.05% -0.15% -0.25% -0.35% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun The ultimate jobless recovery is becoming jobful Unemployment: thousands Short-term = <27 weeks Long-term = >27 weeks Income inflation adjusted to today's USD 16,000 14,000 Total unemployed 12,000 Short-term unemployed 10,000 8,000 6,000 Long-term unemployed 4,000 2,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 4
Unemployment rate normalized for participation rate December 2007 Participation rate Headline unemployment rate Recession 66.5% 66.0% 65.5% 65.0% 64.5% 64.0% 63.5% 63.0% 62.5% 62.0% Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% Winner and losers in the Not So Great Expansion following the Great Recession Change in total payrolls from prior business cycle peak, millions +11 +9 +7 +5 +3 +1-1 -3 Services Management, professional Sales and office -5 Production, farming -7 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Source: BLS, NBER, TrendMacro calculations 5
21.8 28.4 45.2 46.6 59.0 62.3 57.4 79.2 9.4 8.8 10.9 13.6 13.6 15.9 16.8 15.4 18.6 21.2 18.5 20.1 21.8 19.5 21.9 21.3 20.3 20.4 18.1 20.6 17.0 23.0 22.3 21.8 20.4 21.3 US labor force demographics: fading baby boom and its well-educated echo By age and education bracket: Dec 2000, peak in the labor force participation rate Latest Prime age 7.4% 6.5% 8.7% 8.7% 8.2% 8.9% 10.3% 10.5% 9.4% 8.4% 8.2% 7.5% 9.5% 8.5% 7.9% 8.0% 8.4% 6.4% 7.9% 5.1% US population, millions 8.2% 6.6% 5.3% 7.2% 4.4% 4.1% 16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-over 77.2% 69.8% 50.1% 84.6% 84.6% 84.4% 85.2% 84.6% 82.7% 83.0% 83.2% 83.0% 82.9% Labor force participation rate 80.2% 79.7% 73.0% 69.3% 57.1% 47.5% 33.5% Based on demographics of aging since December 2000 0.4 million persons could join the labor force. 33.9% 24.5% 19.4% 14.1% 9.1% 5.4% 16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-over US population millions 32.9% 28.2% 15.9% 25.2% 26.0% 26.0% 35.9% Labor force participation rate 74.1% 64.4% 57.7% 65.6% 79.4% 73.7% 9.9% 47.0% 43.0% Based on the demographics of education since December 2000 12.7 million persons could join the labor force. No high school diploma High school, no college Some college, assoc. degree Bachelors or higher No high school diploma High school, no college Some college, assoc. degree Bachelors or higher 6
Monthly job-finding probability (the outflow rate from unemployment) Chance of an unemployed person becoming employed in one month (per Shimer 2005) Recession 65% 55% 45% 40% 35% 30% 25% 20% 15% 07 08 09 10 11 12 13 14 15 16 17 18 45% 35% 25% 15% 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 Monthly job-separation probability (the inflow rate to unemployment) Chance of an employed person becoming unemployed in one month (per Shimer 2005) Recession 5.5% 5.0% 4.5% 4.0% 2.9% 2.7% 2.5% 2.3% 2.1% 1.9% 1.7% 1.5% 07 08 09 10 11 12 13 14 15 16 17 18 3.5% 3.0% 2.5% 2.0% 1.5% 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 7
Involuntary part-time workers as percentage of the employed labor force Persons available for full-time work Recession 7% 6% 5% 4% 3% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 2% 07 08 09 10 11 12 13 14 15 16 17 18 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 Aggregate weekly private hours-worked index Recession 110 100 90 80 70 110 105 100 95 90 98 01 04 07 10 13 16 60 50 40 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: BLS Productivity and Costs (quarterly) and Current Employment Stats (recent monthly), TrendMacro calcs 8
Difference in employment change: "household" minus "payroll" surveys Recession +1500 +1000 Small company bias +500 0-500 -1000-1500 Big company bias 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: BLS Current Population Survey and Current Employment Statistics, TrendMacro calculations Civilian labor force versus 20-year trend, millions Recession 150 130 110 162 160 158 156 154 152 07 08 09 10 11 12 13 14 15 16 17 18 90 70 50 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 9
Unemployment rate Can the disabled come back to the labor force? Social Security disability recipients, millions 11 9 7 11 10 9 8 7 6 98 00 02 04 06 08 10 12 14 16 18 5 3 1 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Running out of workers? The Beveridge Curve Cycle relationship between unemployment and job openings Expansion Recession Expansion extreme, from 1954 to present +10% +9% +8% +7% Current expansion 80-81 expansion +6% +5% +4% Great Recession 75-80 expansion Average recession 82-90 expansion 58-60 expansion Average expansion 70-73 expansion 01-07 expansion 91-01 expansion 54-57 expansion Current expansion 61-69 expansion +3% +1.5% +2.0% +2.5% +3.0% +3.5% +4.0% +4.5% +5.0% +5.5% Open rate Source: BLS Current Population Survey & JOLTS. Pre-2000:Conference Board normalized per Valletta (2005), TrendMacro calculations 10