Most Jobs Added Since At Least 2000

Labor Force Participation Rate

Even though I’ve already done two articles on Friday’s labor report, there’s still more to unpack.  The ADP report showed 235,000 jobs added. For an apples to apples comparison with the BLS report, you look at the private payrolls. Month over month, the private payrolls were up 287,000. While both will be revised, as of now it looks like the BLS number was better than almost anyone expected. Another interesting point is the U6 unemployment rate was flat at 8.2% just like how the official U3 rate was flat. You need to dig deeper to understand this report.

Last month the labor force participation rate was 62.7%. The estimates for February were between 62.6% and 62.8%. In the February report, it beat expectations as it was 63%. This was a big month for workers coming back from the sidelines and into the labor market. If you look at the chart of the labor participation rate, this doesn’t look like a big deal because there have been a few times in the past few years where it has hit 63%. It has been between 62% and 63% for about 4 years. However, that’s the wrong chart to look at.

The more informative chart is the one below which shows the labor force participation rate for workers ages 25-54. As you can see, it went up like the employment to population ratio for prime aged workers. The participation rate was up from 81.8% to 82.2%. That’s the biggest monthly increase since November 2013. If you looked at this chart before this report like I did, it told you the labor market has plenty of slack left. That gave you an edge over most economists who are looking at the unemployment rate. You’ll gain another edge when the chart shows you when the slack runs out. The prime aged participation rate peaked at 83.8% in 1990, at 84.6% in 1999, and 83.4% in 2007. Usually it peaks about a year before the recession starts. It seems like we’re about 1-2 years away from the peak which means a recession is coming in 2-3 years. The biggest wage growth gains of the cycle should come in 2019.

Big Additions To Full and Part Time Jobs

The chart below gives the best depiction of why this labor report was so significant. As you can see, the total full time and part time jobs added was the most since at least 2000. There were 729,000 full time jobs added which is the most since September 2017. There were 277,000 new part time jobs added which is the most since July 2017. 785,000 jobs were added in February and the labor force increased 806,000. I think it would be almost impossible for this number of jobs to be added without an increase to the labor force because there doesn’t seem to be any slack in the labor market based on the workers currently in the labor force. Only the stats which show all the people who gave up looking for jobs explain how this was possible. If you assume it is possible with just the current people in the labor force, the wage growth would have spiked sharply as a result. This would’ve cause the average weekly earnings to soar. The inflation fears would have ramped up more than they did after the last report. Yields would have spiked and stocks may have cratered.

Manufacturing Jobs Coming Back?

Because the tariffs help manufacturing at the behest of services, I pointed out that the manufacturing industry provides much fewer jobs. The decline in jobs in manufacturing has occurred because workers in that sector have gotten much more efficient due to improvements in technology. The efficiency gains in manufacturing have been much stronger than the gains in services. That’s the long term trajectory. However, the short term trend for manufacturing is very strong. With the latest report and the adjustment to the previous report, the consecutive streak of 25,000 or more manufacturing jobs added per month is at 4. While that doesn’t seem impressive at the surface, the chart below shows this streak of 4 months is the longest one in 20 years.

The chart below shows that efficiency gains have been much stronger in the manufacturing sector than services. As you can see, since 1987, the output per person in the services sector is up about 55%, while the output growth per person in manufacturing is up about 125%.

There Is More Slack Than Previously Thought

Even though the chart below came out before the labor report was released, it is a great depiction of how wrong most economists have been about the labor force being full. The chart looks at the unemployment rate compared with the average weekly earnings growth. When the unemployment rate is below 5.5%, the chart is highlighted in dark blue to show when there should be wage growth acceleration. The arrows depict when the accelerated wage growth occurred. The dotted line shows how this cycle has been different from the previous 2. There hasn’t been accelerated wage growth like the last 2 cycles.

Baby Boomers Are Still Working

I focus on the prime aged workers to adjust for demographics, but the older workers are still important to the labor force. As you can see from the blue line, the total workers aged 55 and older is growing exponentially because improvements to healthcare make it easier to work at an older age. Workers also need to earn more money to spend in retirement because people are living longer. It’s possible that a retirement can be 30 years if you retire at 65 and live until 95. Working 5 more years is a huge difference because you’re earning money in those 5 years and you need less for retirement. Earnings at the end of careers can be high for experienced skilled workers, so it makes sense from a personal finance perspective to work a couple more years if you are physically capable of it. You can see the share of the workers in this group has risen to 23%. Even though many more people are working until an older age, the baby boomers still bring down the overall labor force participation rate.

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