The BLS April Employment Situation is now available for all to see.  After economic forecast houses across the globe ran their models beginning in mid-March and re-ran them again and again until as recently as last night, we now have bona fide economic data on the historical and life changing event that we are living through.

Before even jumping in to the details of the report, we want to use this space to urge Governors to implement careful but sensible plans for re-opening their economies immediately. Just as importantly, we urge them to communicate the timeline for re-opening, even if plans are tentative. Simply stating that, “We will be guided by science.” is not a plan. And, waiting for cover from public health officials will significantly lengthen the country’s economic crisis and the overwhelming social costs that result.

CERF’s forecast for April was for employment losses of 19.7 million and an essentially flat labor force. The data shows employment losses of 22.4 million and an almost 6.5 million drop in labor force. While the employment loss was reasonably close to our forecast, the labor force contraction was not. In retrospect, we underestimated the massive disincentive to working (or even looking for work) that the CARES Act brought to the labor market. The April unemployment rate is 14.7 percent, lower than our forecasted rate of 16.5 percent. Our forecast error in this case is driven almost entirely by our miss on the contraction of labor force. If labor force had held at February’s level, the April unemployment rate would have been 18.9 percent.

The jobs breakdown by sector shows that the hardest hit of the major sectors were Leisure & Hospitality, Education & Healthcare Services, Professional & Business Services, and Retail Services. With job losses of 7.7, 2.5, 2.1, and 2.1, respectively, all experienced losses numbering in millions of people. Across the spectrum of industries, as well as across sub-segments within these industries, lower-paid workers were hit hardest. These workers and the households they reside in will suffer, as they are the least able to weather an adverse economic shock such as this.

The report has a number of black linings, not silver linings as some analysts have reported. First, the employment losses reported today almost completely wipe out all of the gains accumulated since the Great Recession. The labor force contractions are especially worrisome. Labor force contractions reduce the productive capacity of our nation. They put people on the couch, which leads to many kinds of well-documented social costs, including increased rates of domestic violence, divorce, and even suicide. What’s more, while 88 percent of survey respondents indicated that their job loss was temporary, this is not likely to prove true. We are persuaded by a University of Chicago study that suggests half of these self-proclaimed temporary losses will become permanent.

This morning’s report also provides evidence that the shutdown is eroding the core of the U.S. economy. Consider the position of American Latinos. As we document in the 2019 LDC U.S. Latino GDP Report, Latinos are a tremendous source of economic growth for the nation. In fact, despite being only 17 percent of the population, Latinos are responsible for more than 80 percent of the growth of the labor force from the Financial Crisis up to the start of the pandemic. The April report indicates that Latino employment dropped by about 6 million persons, a nearly 24 percent share of the nation’s job losses. Because Latinos were more likely to be working, they were also be more likely to be furloughed or laid off during the downturn. The problem for the nation is that the labor force’s strongest growth cohort is being disproportionately harmed. The core of the American economy is eroding, and this diminishes the long-term growth outlook for the nation.

The dramatic concentration of impacts in a few job sectors and among specific demographic groups indicates that the shutdown is also increasing inequality across every state in the nation.  Consider the contrast between a technology professional who shops at Nordstrom’s and an employee of the store. The government-mandated closure of a Nordstrom’s store has minimal impact on the technology professional, who will simply move her shopping online as she conducts her own employment responsibilities from home. The tech professional’s inconvenience will largely end with the closure order. In contrast, the Nordstrom’s employee will experience both lost income and lost work experience. The effects will be enduring. The Nordstrom’s employee confronts a much-changed economic reality.

The policy responses to the spread of the coronavirus have already initiated a historic economic contraction. These economic convulsions necessitate an immediate response. Lifting shelter-in place orders for all but the most vulnerable groups is essential. Research from the NBER indicates that narrowly targeted lockdowns along with continued social distancing practices and robust testing can minimize both loss of life and the extraordinary economic losses detailed in this morning’s report.

The post April Employment Situation & Forecast Update appeared first on Center for Economic Research and Forecasting.

First, we dismiss the unemployment rate altogether. The unemployment rate is simply not an accurate measure of labor market health. The Financial Crisis and Great Recession drove millions of Americans out of the labor force. The overwhelming majority have remained sidelined from productive economic activity.

What we watch carefully is labor force participation, and the latest jobs report has modestly good news. Labor force participation ticked up, as increasing wages drew more than 300 thousand people back in to the labor force.

Prior to Friday’s report, labor force participation stood at a low not seen since August 1978. With the latest increases, you only have to go back to May 1979 to find participation this weak.

Despite modest gains detailed in this report, the labor market is still weak from a historic perspective. If the labor force participation rate were the same as it was prior the Great Recession, today’s unemployment rate would be over 7 percent, nearly double the current rate.

In the latest report, construction jobs continue to be a sign of good news. Over the twelve months of 2019, construction jobs grew at a rate more than double that of all jobs. The January number was strong even compared to the past twelve months.

The post The January Jobs Report appeared first on Center for Economic Research and Forecasting.

Productivity dropped for the second consecutive quarter, and hiring slowed.

It appears that a weak global economy and the United States increasingly onerous regulatory environment is more than offsetting and stimulus from lower oil prices.

The post U.S. Economy Weak and Fragile appeared first on Center for Economic Research and Forecasting.

I seriously considered working in one of Southern California’s aircraft manufacturing facilities. Good thing I didn’t, instead going into banking and later academia. Most California aircraft manufacturing jobs are gone. Lots of other jobs are gone too. In 1972, Southern California was a major manufacturing center. Beside aircraft, Southern Californians built cars, tires, ships, and lots of other things.

It was also a time of optimism and economic growth. California was still the place anything could be done. Since then, I’ve watched California lose one industry after another.

Today, California has few sources of economic growth. Our trade is increasingly threatened by an expanded Panama Canal, increased capacity in Mexico and Canada, and our own unwillingness to expand our ports and supporting infrastructure. Our entertainment industry is threatened by changing technology and increased competition from other geographies. Our education sector is threatened by funding challenges, bureaucracy, and a reluctance to adapt to a rapidly changing environment.

But, we still have one really good sector. Tech, with its venture-capital infrastructure and concentration of talent, will be a persistent source of economic strength for California. Or, so I thought before I recently met Dino Vendetti.
Vendetti is a serial entrepreneur and a veteran venture capitalist. He’s a Silicon Valley insider. He’s a threat to California’s tech future.

Startups used to require $10 million to $30 million to get going. The big investment was associated with big burn rates (rate at which losses ate up capital). They required big teams and big infrastructure. Because of this, they located in the Silicon Valley, New York, or Boston.

Not any more according to Vendetti. He talks about structural changes going on in early-stage tech entrepreneurship. According to him, the cloud, open-source development tools, low-cost bandwidth, web 2.0 as a distribution channel, modern accelerators, and scalable business models have allowed low burn rates by delaying scaling until revenues materialized.

This shift toward lean-start-up methodologies is changing the way start-ups are financed. It allows more risk taking, because smaller individual investments allow increased portfolio diversification. This is a threat to the Silicon Valley’s dominance. It is an opportunity for other California cities. If other cities don’t capitalize on the opportunity, it’s a threat to California.

All this is leading to what Vendetti calls a Democratization of Entrepreneurship. It’s reduced but not eliminated the disadvantages of a start-up located outside the traditional centers of venture-capital driven entrepreneurship. It’s made vibrant regional tech clusters feasible.

Vendetti says that anywhere with a university, risk capital, and accelerators can grow a tech cluster. I would add that you also need plenty of bandwidth and an airport with easy access to the traditional tech centers.

Vendetti is putting his money where his mouth is. He’s building what looks to me to be an entrepreneurial farm system in Bend Ore. It’s a complete venture-capital infrastructure that includes Start-up Weekends, where ideas undergo vigorous vetting for market and profit potential; mini three-week programs to follow the start-up weekends; and finally an accelerator,  (an intensive, few-months-long, process of building a business plan and firm to the point where it’s ready for initial-stage venture capital). He’s also organizing investors around a venture capital fund.

It’s not just Vendetti’s money. He has investors and partners from the Silicon Valley. This is a big deal for Californians. Entrepreneurial tech is our last economic engine. Somebody from Sacramento needs to talk to Vendetti and find out what it would take to keep him and others like him in California.

This previously appeared in the Orange County Register

The post California's Last Growth Engine is Not as Strong as I Thought appeared first on Center for Economic Research and Forecasting.

The unemployment rate fell from 7.9 percent in October to 7.7 percent in November which might appear to be good news. However, this change was driven mostly by a contraction in the labor force of 350 thousand persons. So this is more a function of discouraged job-seekers leaving the labor force than any other factor.

Job growth was 146 thousand jobs, essentially the same as our forecast of 145 thousand jobs. The September jobs number was revised, from a gain of 148 thousand jobs down to a gain of 132 thousand jobs. The October number was also revised, from a gain of 171 thousand jobs down to a gain of 138 thousand jobs. These revisions accumulate to almost 50 thousand jobs less than what was previously thought.

On December 12, the United States Federal Reserve Open Market Committee announced a monetary policy that plans to keep the federal funds rate low until the unemployment rate falls to 6.5 percent.

Curious about how long it would take to get to an unemployment rate of 6.5 percent at current job growth rates, I did a simple calculation. I used the 146 thousand payroll survey jobs to drive a proportionate change in the household survey employment level, which ends up being monthly employment increases of 156 thousand persons. I set civilian labor force on a gradual growth path that maintained the current labor force participation rate at 63.6 percent. These assumptions imply that the United States unemployment rate would subside to 6.5 percent by June of 2017.

June of 2017 is a long way off. I hope job growth will exceed 146 thousand in months to come.

The post Jobs and the 6.5 Percent Unemployment Rate appeared first on Center for Economic Research and Forecasting.

The industrial revolution caused the horse’s relative decline.  In 1800 horses were a big part of the economy.  They powered most overland travel and lots of manufacturing, and they were critical to agriculture.  Today, horses are a luxury good, providing entertainment and sport to those who can afford their high cost.  In economic terms, the marginal value of a horse’s work became less than the costs of feeding the horse.

At the time, people worried that the industrial revolution would also put people out of work, but unskilled workers were a major beneficiary of the industrial revolution, as unskilled wages rose relative to skilled wages.  That could be changing, at least in the United States.

For the past decade, less-educated workers’ wages have dramatically lagged higher-educated workers’ wages.  This is a result of globalization and technology.  In their book  Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, Erik Brynjolfsson and Andrew McAfee argue that we may soon put not just unskilled but skilled workers out of work.

Is that a boon or a curse?   We could say that it’s a boon.  Output, even on a per-capita basis, would go up.  So, there is no reason for anyone’s consumption to go down.  In our economic models we model agents as optimizing across leisure and consumption.  If consumption goes up and leisure goes up, it’s all good, right?

Wrong.

Our models don’t take into consideration that jobs give people something besides the ability to consume.  Jobs give people purpose, discipline, dignity, and self respect.  People without work are different, even when their consumption needs are fully provided.  Communities where consumption is provided and jobs are absent are characterized by serial and abusive relationships, high rates of crime and substance abuse, violence, poor health, low educational attainment, and early and frequent pregnancies.  This is true even when healthcare, birth control, and educational opportunities are readily available.

We would have a problem if people were put out of work, and it would be more challenging than the horse problem.  When we had more horses than jobs for horses, the horse population was adjusted.  That won’t happen with people.  Outside of a slave society, nobody is going to compare the cost of feeding a person with that person’s output, killing the person if the costs turn out to exceed the output.

The situation would necessarily lead to high tax rates on capital and subsidies for the unemployed.  However, something has to be done to improve the incentives in our current safety net.  Otherwise, we are left with a large and growing population of subsidized people who will never be employed, and all the problems associated with such a population.

One solution is to eliminate the minimum wage and boost the market wage with a negative income tax, one structured in such a way that the minimum amount a worker would receive would meet a socially acceptable standard of living, and one where beneficiary never faces high marginal tax rates.

As long as capital and labor are substitutes–and this must be the case if capital is replacing labor–labor will have a positive marginal product.  This means that there will be a positive, but perhaps very small, wage associated with the labor.  A job, with all its non-pecuniary benefits, would be available.

The resulting situation would be far superior to the current safety net where our poorest routinely face marginal tax rates in excess of 100 percent.  The taxes on capital would be lower than those that would be required with a safety net patterned after our existing safety net, because we would avoid the costs associated with persistent unemployment.  Most importantly, the personal costs absorbed by the persistently unemployed and their families would be avoided, because they would be employed.

The post Horses and the Minimum Wage appeared first on Center for Economic Research and Forecasting.

The unemployment rate fell from 8.3 percent to 8.1 percent. Apparently, most of that was because of a decline in labor force participation.

The information that provides us with the unemployment rate comes not from a payroll survey but rather from a household survey. From this survey, the story is one of relative contractions. The employment level contracted about 120 thousand jobs, while the civilian labor force contracted more, by 368 thousand jobs which drives the unemployment rate down.

An important story from this report is one of significant labor force contraction. Why might this be so? One key reason is that jobs are difficult to find at this time. There are both cyclical and structural factors at work. The cyclical factor is the well documented slowness this recovery has exhibited thus far, which will not change quickly as the household sector’s wealth is down, and consequently the sector is still reducing its debt, a gradual process.

Real Estate is one identifiable structurally unstable sector. The post-bubble residential real estate market will eventually find a new steady-state at a lower level of both sales and prices that imply fewer per capita construction jobs than before. This will require real estate industry workers to find jobs in other sectors. This is another slow process.

Commercial real estate is also moving toward a new, lower steady-state level of per capita square footage because of the internet. Brick and mortar retail establishments are on the decline on a square foot basis due to an ongoing shift to internet based transactions. Relative office space requirements will be declining as well, due to a shift to telecommuting. These dynamics will be ongoing for some time, causing a need for workers who are connected to real estate to retrain or to provide their services to clients in a different industry.

These stories about debt reduction and real estate woes are four years old, but at the moment they are still relevant.

The post The U.S. August Jobs Report appeared first on Center for Economic Research and Forecasting.

While the increase in jobs is good news, the Employment Situation also contains a separate survey of households. This is where the unemployment rate data come from. (Note the terminology here: “jobs” come from the employer survey and “employment” comes from the household survey). From this survey, we see that both the July labor force and employment contracted, but the employment contracted a bit more, resulting in a slight unemployment rate rise from 8.22 percent to 8.25 percent. While the 8.25 rounds to 8.3 it was not a rise in the unemployment rate of a tenth, but rather only three hundreths.

For many months now, the employer survey and the household survey have been disentangled, which is not the historical norm. For a few months now the household survey has indicated an employment gain greater than the job gain. For July, the relation switched … employment fell almost 200 thousand jobs while jobs gained 136 thousand jobs!

What might the reasons for the discrepancy between the jobs and employment data, which are each trying to measure essentially the same thing? The jobs data might miss people who are working part-time and or on their own (in their garage). Employers might report only full-time positions. Households might say they are working, if they are doing part-time or under the table work from their home or from an office shared with someone else, that would not get picked up by the Employer survey.

The July result is harder to explain. But it indicates that people are responding to the question: “are you working” with a “no” more than in June. If they had been doing part-time work or under the table work perhaps that has ended, and they are back to looking for that elusive full-time job.

Whatever the reason, todays Employment Situation has more good news than bad.

The post U.S. July Jobs Report appeared first on Center for Economic Research and Forecasting.

NEW YORK (CNNMoney) — The International Monetary Fund said Monday that the global economy should continue to limp along at a modest pace, assuming leaders in Europe and the United States do not make things worse.
In the latest update to its World Economic Outlook, the IMF said it expects the global economy to grow 3.5% this year and 3.9% in 2013. That’s “marginally lower” than what the IMF predicted in April.

“The global recovery continues,” said Olivier Blanchard, director of the research department at the IMF, during a press conference in Washington. “But it is a weak recovery, indeed a bit weaker than we forecast last April.”

After a better-than-expected performance in the first quarter, the U.S. economy is projected to grow 2% this year and 2.3% in 2013, according to the report. Both rates are down 0.1% from the April outlook.

The IMF said its predictions are based on two key assumptions: That euro area governments will implement proposed reforms to stabilize the currency union and that U.S. officials will stop the nation from falling off a “fiscal cliff.”

Those are some big assumptions, and they don’t give me any comfort.

The post Questionable Assumptions appeared first on Center for Economic Research and Forecasting.

Bloomberg’s consensus jobs estimate was 100,000. Our forecasts for jobs and economic growth have been consistently under consensus since September 2008. Thus far, our forecasts continue to be vindicated by the data. We would prefer to become optimistic, but have not yet found the opportunity to do so.

Key headwinds for future job growth include Euro area instability, US Macroeconomic policy uncertainty, slow Asia growth, and a still-weak real estate market in the United States.

We remind our clients that real estate is still a key negative factor in the U.S. economy. Household sector wealth remains weakened by falling Case-Shiller home prices, and the weak job market mixes with the large distressed inventory to keep the prospects for a near-term uptick in housing values dim.

The post The June 2012 Jobs Report appeared first on Center for Economic Research and Forecasting.