More Disappointing News on Pittsburgh’s Labor Market Data

A month ago, the Department of Labor and Industry released a stunningly negative report showing huge downward adjustments to establishment payroll jobs for 2013—revisions that wiped out all of the significant growth that had been reported each month last year.   In December for example, the so called establishment survey of jobs figure was lowered by 21,000, erasing entirely the originally reported gain.

 

And now, the Department is out with newly revised data obtained through the household survey; the survey that measures the number in the work force, the number of persons employed and the unemployment rate.  Revisions cover all five years from 2009 through 2013 inclusive. Generally speaking the revisions are downward for both employment and labor force and get larger going forward in time from 2009.

 

The revisions are not encouraging.  Remarkably, the downward revision to the number of persons reporting they are working puts the annual average employment for 2013 below the average employment for 2008—instead of the 8,000 gain in employed over the period in the originally reported figures.  Over the last seven months of 2013 the downward adjustments averaged 14,265 per month. Note that for the year as a whole the adjustment was 10,268 lower than the originally reported figures for 2013.

 

Downward revisions were especially pronounced for June and July employment counts with reductions averaging 17,300 per month compared to originally reported figures. New employment estimates for the fourth quarter also showed sizable cuts from original reports that average 13,400 workers for the three months. These reductions put the fourth quarter of 2013 employment nearly 8,000 below the fourth quarter of 2012. Before the revisions, the average for 2013 as a whole stood 8,500 higher than in 2012—after the revisions it was up only 2,300. It is noteworthy that even before the latest round of revisions the monthly gains in late 2013 had already slowed substantially compared to the gains recorded during the midyear months.

 

Fourth Quarter Average Household Employment

Year

Original

Revised

Difference

2008

1,170,103

1,170,103

0

2012

1,175,051

1,169,614

-5,437

2013

1,175,515

1,162,095

-13,420

 

While the number of people working, either self-employed or for another entity, is hugely important as an indicator of economic vitality, it does not by itself however, capture the whole story. Thus, the survey also asks those who report to the interviewer they are not working whether they are actively seeking work. Those who respond “not working but looking” are classified as unemployed.  Added together, the number employed and the number unemployed are called the labor force. Those of working age (over 16) who are not institutionalized and are neither working nor looking for work are termed “not in the labor force”.

 

The unemployment rate, the closely watched monthly statistic that grabs headlines, is simply the ratio of the number unemployed to the number in the labor force usually expressed as a percentage. Interestingly, the number unemployed were revised upward by a monthly average of 527 in 2010 and just under a thousand in 2011. During the first eight months of 2012, the upward revisions in unemployment continued to average around 1,000 but in the latter third of the year, the revisions shifted downward hitting negative 3,000 by year end. This was followed by a 5,890 reduction in January 2013 and further reductions throughout the year. For 2013 as a whole, the revisions lowered the unemployed count by almost 2,000 per month on average.

 

But as it turns out, the unemployment rate itself was barely changed by revisions for most months over the five year period except in the few months with exceptionally large revisions in the number unemployed.  Note that in both the original reports and the revised data, the number unemployed began to fall rather sharply in the second half of 2013.  At the same time, employment began to fall below the twelve month earlier levels reflecting a distinct weakening in the labor market.  So, of necessity, with both unemployment and employment falling the labor force also fell and by more than employment to reflect the decline in both.

 

What does this tell us about the recent dramatic declines in the unemployment rate?  A drop in the number unemployed accompanied by rising employment would be unambiguously positive in that it would point to some unemployed persons finding work. However, with employment falling or holding steady when unemployment falls, the implication is that out of work persons are not moving into jobs but rather out of the labor force altogether, that is to say they are no longer looking for work.  Some argue that the falling labor force could reflect retirements.  That might be possible but it would suggest that as people with jobs are retiring some of the unemployed are filling the positions opened up by the retirements including those created by promotions into the vacancies resulting from the retirements. It could happen, but the sudden rather rapid decline in unemployment in the second half of 2013 implies something else is at work, either in measurement issues or in actual changes in labor market dynamics.

Conflicting News in May PA Employment Report

As often happens, the latest employment situation report for Pennsylvania is a tour de force of opposing signals about the market. The household survey that estimates the number of people who say they are working and the establishment survey that reports the numbers of workers on payrolls could not be more at odds.

The household survey claims 24,000 additional people joined the ranks of self-reported employment in May compared to April, while the establishment survey found a drop of 9,200 workers on payrolls. Moreover, since May of 2012, the household survey shows a twelve month rise of 68,000 people who say they are working while the establishment survey shows a mere 4,700 increase.

The Pennsylvania household survey results mirror the recent national numbers to a large extent. For example, the twelve month gain in Pennsylvania employed was 1.1 percent, exactly the same as the national increase. April to May jumps in labor force in the state and nation were also very close in percentage terms.

Meanwhile, the figures from the establishment survey are quite bleak. The report shows data for ten private industry sectors. Pennsylvania employment in six sectors fell between April and May, two were basically unchanged and only two posted meaningful, albeit small gains-Education and Health and the "Other" services sector.

What to make of this disparate behavior? One explanation offered by some analysts is that many people have decided to become self-employed and are captured by the household survey while being missed by the establishment survey. That has some plausibility. There is anecdotal evidence that underground economic activity has increased during the long period of economic sluggishness. People working "off the books", growth in numbers and size of "flea markets" where new goods are sold, and cash transactions would account here. After all, with millions of illegal immigrants, many of whom are employed, what are odds that a big portion of that activity is not measured by the government’s normal methods?

There is also a question of accuracy of the surveys. The measurement problems inherent in household surveys and its self- reporting that are not as easily verified as are the establishment reports. On any case, there will be major benchmarking update at some point that will likely bring the surveys into closer alignment for a while.

PA Labor Market Develops Signs of Weakness

March’s employment news for the Commonwealth was quite unwelcome. Both the household survey and the establishment payroll survey brought signs of marked weakness in employment.

 

 

People reporting themselves as working fell by 14,000 in March after a 6,200 decline in February and a slight 1,000 drop in January. In short, the entire first quarter exhibited a pattern of steady weakening in the number of people working.  Meanwhile, private payroll employment at establishments fell by 6,500 in March, sliding below the January level and up by a mere 1,000 compared to a March 2012. Indeed, private payroll jobs are still 40,000 below the March 2008 number, the high watermark for a March job count, and just before the effects of the national recession pummeled the state’s labor market.

 

Misguidedly, the headline about the labor market situation was the unemployment rate dip from 8.1 percent in February to 7.9 percent in March. But in light of the fact that the number of people working tumbled by 14,000, it is reasonable to ask; how could the unemployment rate fall?  It fell because the labor force plunged by 33,000. That is to say, an additional 33,000 people in the non-institutional population old enough to work chose not to seek work. While this is a startling number it does mirror the massive half million decline in the nation’s labor force in March. As a result of the 33,000 plunge in the number of people not looking for work, the number of unemployed went down 19,000, mathematically lowering the percentage unemployed.  In sum, the apparent good news of an unemployment rate decline hid the bad news of a significant drop in the number working along with a substantial decrease in the labor force.

 

Why the recent Pennsylvania weakness?  Based on the national employment situation in March, there has been a similar abrupt slowing countrywide.   Apparently, the state has not been able to sidestep the impacts of the forces restraining the national economy-Obamacare effects, the tax hike in January and the regulatory onslaught coming from the DC governing apparatus.   

 

Looking back over the three years of the recovery so far, what was the pattern of job gains and what have been the sources of strength-and recent weakness?

 

From January 2003 to January 2008, private sector employment rose at an average annual rate of 0.8 percent to reach 5,074,400 jobs. Nationally, private employment climbed at a 1.2 percent annual rate over the same period with several states enjoying well above national rates of job gains.  With the steep national recession hitting in 2008, Pennsylvania employment fell to a low of 4,810,100 jobs in February 2010 before starting to rebound. Over the next twelve months, the job count had risen by 110,000, reaching 4,919,000 in February 2011. Between February 2011 and February 2012 jobs grew by 85,000 bringing the two year increase since the recovery began in March 2010 to 195,000. Unfortunately, the solid gain between February 2011 and 2012 marked the end of the good employment growth period. As noted above, from March 2012 to March 2013, private employment managed a statistically insignificant uptick of only 1,000 jobs.

 

The question that arises is: Which sectors accounted for the two years of fairly good gains and which have led the slowdown? 

 

Surprisingly to some perhaps, the professional and business services sector posted the largest pickup in employment from March 2010 to March 2012 registering a gain of 51,200. But for those who follow the data closely it is not a surprise. Over the period 2003 to 2008, this sector actually grew more jobs than the larger and rapidly growing health sector. Rebounding from the recession it recovered all lost employment and added to the pre-recession peak level. Over the past year (March 2012 to March 2013), the sector managed another 3,900 increase-a far cry from the year earlier pace but still a positive contribution to the Commonwealth’s employment count. 

 

Health care and social assistance, the largest individual private sector in terms of employment, supplied 31,200 of the 195,000 total net gain in private employment over the first two years of expansion and was the second largest contributor to the rise. The good news is this sector appears to be recession proof and added another 13,000 jobs over the March 2012 to March 2013 period continuing its decade long upward trend.

 

Close behind health care in job growth, the leisure and hospitality sector (led by accommodations and food service) added 31,100 to payrolls over the first two year period of recovery and rebound from the recession. That strength has not continued, however, as jobs slipped a bit over the last twelve months. 

 

The remainder of the 80 thousand or so increase in private employment from 2010 to 2102 was spread over several sectors each of which experienced gains between 10 thousand and 17 thousand. This list includes construction (+17,000), mining and logging (+14,300), transportation and utilities (+13,000), retail (+10,000), education (+8,700) and manufacturing (+10,100).   

 

Of these sectors that contributed to the burst of solid overall employment gains from 2010 to 2012, only transportation and utilities managed to eke out a modest gain over the last year. Many sectors including mining and logging, construction, retail, finance, leisure and hospitality and the information sector saw employment levels decline during the last twelve months. These declines largely offset the rise in health, professional and business services and transportation and utilities resulting in the slim 1,000 uptick in total private jobs.

 

In short, employment growth at the major job drivers has slowed dramatically while the slower growing sectors have stopped expanding or even slipped into negative territory. This is not a healthy position for the Commonwealth. Unfortunately, there is little the state can do in the short run to boost employment expansion. The weakness in Pennsylvania stems principally from national policies that are restraining the economy.  Policies that deter investment and punish savings, budget deficits that threaten the national fisc together with continuous calls for higher taxes and reams of new regulations daily are having a smothering effect on the economy. Pennsylvania has been fortunate to have had the substantial boost from Marcellus Shell gas operations but that by itself is not enough to overcome the dead weight of the anchor Washington has attached to the economy.

PA Labor Market Develops Signs of Weakness

March’s employment news for the Commonwealth was quite unwelcome. Both the household survey and the establishment payroll survey brought signs of marked weakness in employment. People reporting themselves as working fell by 14,000 in March after a 6,200 decline in February and a slight 1,000 drop in January. In short, the entire first quarter exhibited a pattern of continual weakening in the number of people working. Meanwhile, Private payroll employment at establishments fell by 6,500 in March, sliding below the January level and up by a mere 1,000 compared to a March 2012. Indeed, private payroll jobs are still 40,000 below the March 2008 number, the high watermark for a March figure and just before the effects of the national recession pummeled the state’s labor market.

Misguidedly, the headline about the labor market reports was the unemployment rate dip from 8.1 percent in February to 7.9 percent in March. But in light of the fact that the number of people working tumbled by 14,000, it is reasonable to ask; how could the unemployment rate fall? It fell because the labor force plunged by 33,000. That is to say, an additional 33,000 people in the non-institutional population old enough to work chose not to seek work. While this is a startling number it does mirror the massive half million decline in the nation’s labor force in March. As a result of the 33,000 not looking for work the number of unemployed went down 19,000 lowering the percentage unemployed. In sum, the apparent good news of an unemployment rate decline hid the bad news of a significant drop in the number working along with a substantial decrease in the labor force.

Why the recent Pennsylvania weakness? Based on the national employment situation in March, there has been a similar abrupt slowing countrywide. Apparently, the state has not been able to sidestep the impacts of the forces restraining the national economy-Obamacare effects, the tax hike in January and the regulatory onslaught coming from the DC governing apparatus intent on remaking America.

The Incredible Vanishing Labor Force

So there is joy at the White House. The unemployment rate dropped to 7.6 percent in March from 7.7 percent in February. That is the headline, but as Paul Harvey would say, "Now the rest of the story." Incredibly, the unemployment rate went down although the number of people employed fell by 206,000. How is this possible, one might reasonably ask. Very simple. The number of people working or looking for work-the labor force-fell by 496,000 (the number of people not in the labor force jumped by 663,000). By the Labor Department’s calculation that brings the number unemployed down by 290,000. Ergo, the ratio of unemployed to the labor force dropped. Just a matter of mathematics.

The labor force participation rate, the ratio of those in the labor force to the civilian non-institutional population, dipped to 63.3 percent from 63.5 percent in February-already one of the lowest in decades.

Meanwhile, the number of people with jobs as measured by the survey of establishment payroll counts rose by a scant 88,000 in March with widespread weakness in goods production-manufacturing was down by 3,000 jobs-and service producing employment. Retail jobs tumbled by 24,100, finance was lower, leisure and hospitality was down along with transportation and warehousing. Only the education and health services component and professional and business services demonstrated any significant strength, accounting for over two thirds of all the net increase in payroll employment.

This is clearly a very disturbing jobs report from both the household survey, from which the labor force and unemployment rate data are derived, and the establishment survey that measures the number of paying jobs as opposed to the number of people working or looking for work.

There can be little credence put in claims that the economy is picking up steam, notwithstanding the massive fiscal and monetary stimulus being applied in Washington. There is little doubt that the effects of the tax increase in January and the impacts of the Affordable Care Act along with torrent of regulations emanating from DC are having a chilling effect on the economy.

PA Supreme Court Decision on Early Retirement Could Cost Taxpayers

From a posting dated February 12 on the Reed Smith Employment Law Watch page we learn that the Pennsylvania Supreme Court has overturned precedent and awarded unemployment compensation benefits to employees who accepted an early retirement incentive package. The Court has decided that employees who accept early retirement are to be treated as employees who accept voluntary layoffs using the arguments that both constitute terminations of employment initiated by the employer. Nice non-work if you can get it.

Whatever one thinks of the logic or illogic of this position, it clearly represents a windfall for employees who accept an early retirement package. The only real question at this point is who pays for those benefits? According to the Reed Smith writer, employers can actually take advantage of this ruling in two ways. Paraphrasing the author, (1) the employer can dangle the unemployment benefits as an added incentive to take the retirement package and (2) the employer could reduce the planned retirement incentive by the amount of the unemployment benefits. We would add that some combination of the two is also possible.

Here’s the rub. While the Court ordered unemployment benefits will likely lead to higher employer insurance payments and a bump up in their tax rate, for employers that reduce the severance package by the amount of the unemployment compensation, the increased payments will almost certainly be smaller than the reduction in the severance package thereby saving the company significant amounts of money. . Moreover, the higher insurance and tax payments are unlikely to cover the unemployment compensation received by the early retirees. Therefore, other contributors to the unemployment insurance plan or taxpayers will be stuck with most of the early retirees’ unemployment compensation. Not a good plan for the economy.

This is clearly something the state will need to keep an eye on. It could lead to serious excessive use of early retirement if companies can use the Court ruling to save themselves a lot of money by passing off a chunk of the cost to other contributors to unemployment funds.

Pennsylvania’s Job Market Improvement Hit a Snag in July and August

After some solid gains over the last year or so, Pennsylvania’s unemployment rate jumped from 7.8 percent in July to 8.2 percent in August. A 16,000 drop in the number of employed (as measured by the household survey) and a 6,000 increase in labor force pushed the unemployment rate up quite sharply. At the same time, the separate establishment survey of jobs found a tiny 1,500 rise in employee count from July to August-much smaller than the average 5,700 per month increase since January.

What’s more, the July establishment job count was revised downward by 11,000 resulting in slight 2,000 job decline from June’s reading rather than the 9,000 jump reported in the July Labor and Industry Department’s release on labor force statistics. On a year over year basis, August employment remains 56,600 ahead of the August 2010 level. However, that figure is well below the 85,000 average of year on year gains during the first three months of 2011. The only truly bright spots in the August data were the gains in mining, manufacturing, professional services and financial employment. Surprisingly, the education and health services sector posted a decline as did leisure and hospitality, sectors that have been mainstays of the jobs recovery. Meanwhile, information services suffered an abrupt 3.6 percent drop in employment between July and August.

All told, the substantial downward revision in July numbers and the small increase in August establishment jobs point to a significant slowing in the Commonwealth’s progress to full labor market recovery.

More Confusing Labor Market Reports

In a recent Policy Brief we described the lack of consistency and need for frequent revisions to regional employment data. These problems make it difficult, on occasion, to understand or ferret out what monthly data actually mean. And right on cue last week’s national labor market and jobs reports brought still more confusion. Payroll employment was up by 244,000 but the unemployment rate rose from 8.8 to 9.0 percent. How does that happen?

The payroll numbers are based on a survey for establishments to ascertain how many people are on the payrolls of the nation’s businesses, governments and non-profits. The unemployment rate is taken from the household survey that asks if people are working or looking for work. In April, the household survey showed 190,000 fewer people reporting they were working than in March along with another 15,000 more looking for work but not finding it, bringing the total increase in the number out of work and looking for work to 205,000.

So what are we to think when the two surveys produce such diametrically opposite results? Unfortunately, these anomalies are part of the inexact science that is measurement of economic indicators covering such vast numbers across an enormous landmass.

Data Revisions Change Region’s Employment Picture

The Bureau of Labor Statistics (BLS) has revised its labor force estimates for the period 2005 through 2010.  This was done to reflect new Census Bureau population controls, updated input data, new statewide controls, and re-estimation.  While these revisions occur regularly, this latest round of revisions produced fairly large changes in Pittsburgh area data for the number of unemployed, employed and labor force.  These changes show the area’s unemployment rate to have been significantly lower than first reported during much of 2010. 

 

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Labor Day in the ‘Burgh Will Find No Joy in the Employment Situation

Compounding the litany of financial difficulties confronting the City of Pittsburgh the latest jobless figures (July 2010) show a recession-high unemployment rate in the City’s labor force of 9.1 percent-a level not experienced in well over a decade.  The unemployment rate has almost doubled since the July 2007 reading of 4.7 percent.

 

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