February 2016 Employment Report: five months of movement
back into the Labor Force
There’s a long way to go, but there are
signs of life in the Labor Markets for the first time in years: 770,000 people
moved from the sidelines (‘not in the Labor Force’) back into the labor force since
The February 2016 Employment Situation Report was
very good, with the Labor Force expanding by 555,000*. The monthly change in the labor force is
equal to the monthly change in employment of 530,000 plus the monthly change in
unemployment (not employed, but actively seeking employment) of 24,000.
The Employment Situation for the month
of February 2016 in Review
the month of February 2016, the employment situation improved
significantly. While it will take years
of sustained growth going forward to make this permanent, we are certainly
moving in the right direction. Digging
into the numbers, we find that the Civilian
Noninstitutional Population (CNP: including the segment of the total
population which is 16+ years of age who are not included in the various
institutional populations such as the military, prisons, etc.) grew by 180,000.
The CNP number is estimated, but typically ranges from 180,000 to 225,000 on a
monthly basis. Keep in mind that there
is no upper age limit on the CNP, so this captures retirees as well.
The Labor Force includes that portion of
the CNP which is either employed or unemployed, but actively seeking employment
(U3, or ‘official’ unemployment level).
When the monthly Labor Force change is less than the Civilian
Noninstitutional Population amount, then there is a net outflow from the Labor
Force; conversely, when the number is greater than the CNP, as was the case in
February 2016 with 555,000 being added to the Labor Force, then there is a net
outflow from the ‘not in the labor force’ component of the CNP.
The Labor Force Participation Rate (LFPR) measures
the relationship of the Labor Force divided by the Civilian Noninstitutional
Population. Going back to prerecession
levels (2000 -2008) the Labor Force Participation Rate had been in the 66.0%
range. After reaching a nearly 40 year
low in September 2015 of 62.4%, the Labor Force Participation Rate has rebounded
to 62.9%. There’s a long way to go to
get back to the pre-recession level, but there are certainly signs of
by 530,000 in February 2016. When we
reference to Employment Situation, this uses data drawn from the Current
Population Survey. The Current
Population Survey (CPS) and the Current Employment Statistics (CES) both
measure changes in Employment. While the
CPS is smaller in size than the CES (also referred to as the Payroll Survey),
it covers a wider swath of the population than the latter.
Current Population Survey (CPS) is a monthly survey of households conducted by
the Bureau of Census for the Bureau of Labor Statistics. It provides a
comprehensive body of data on the labor force, employment, unemployment,
persons not in the labor force, hours of work, earnings, and other demographic
and labor force characteristics. Current Population Survey, a sample of 60,000
households; data are collected by personal and telephone interviews. Basic
labor force data are gathered monthly; data on special topics are gathered in
periodic supplemental surveys.
or Current Employment Statistics http://www.bls.gov/ces/
Each month the Current Employment Statistics (CES) program surveys
approximately 146,000 businesses and government agencies, representing
approximately 623,000 individual worksites, in order to provide detailed
industry data on employment, hours, and earnings of workers on nonfarm
The Employment Population Ratio measures
those Employed divided by the Civilian Noninstitutional Population (CNP). The significance of the ratio is that it
provides insight into how many people are rowing the boat. For February 2016, the Employment Population
Ratio was 59.8%. It was as low as 58.2%
as recent as November 2010, so there have definitely been signs of
improvement. The objective would be to
get back to the prerecession 62 to 63% range.
all of the growth in employment, it would be reasonable to expect a fall-off in
the Unemployment level; this was not
the case in February 2016 as Unemployment actually increased by 24,000. While on the surface this may seem counterintuitive or at least puzzling, it
was simply a case of ‘Encouraged Workers’ streaming back in from outside of the
labor force. The U3, or ‘official
unemployment level’ measures those in the labor force who are not employed, but
are actively seeking employment. If the unemployed had risen to the point where
the unemployment rate had gone up, holding the employed constant, this would
have expanded the labor force even further and been a signal for even stronger
U6 measure of unemployment (underemployment) includes the U3 folks (not
employed, but actively seeking employment) along with those who are discouraged
(non U3 component of U4), marginally attached (non U4 component of U5), and
those who are working part-time for economic reasons (non U5 component of U6). The U6 Unemployment number is not published,
but the U6 Unemployment rate is http://www.bls.gov/news.release/empsit.t15.htm.
The U3 Unemployment Rate measures that
portion of the labor force that is not employed but actively seeking employment
divided by the total Labor Force (employed + unemployed). In spite of an increase of 24,000 In February
2016 the U3 Unemployment Rate actually fell slightly (from 4.92% in January to
4.18% in February). This occurred
because the labor force expanded by such a large number, with most of them
finding employment. It’s entirely
possible that the unemployment rate could rise in the next few months if the
economy truly grows in a more robust manner.
This phenomenon, the ‘Encouraged Worker Effect’ occurs when the people
leave the ‘not in the labor force’ component of the Civilian Noninstitutional
Population to seek employment opportunities.
The prospect of job opportunities adds to the labor force and the
unemployment level and rate often rises for a short period.
The U6 Unemployment Rate is a better
measure of the health of the labor markets because in addition to the U3 rate
(not employed, actively seeking employment), it also takes into account those
people who are discouraged, marginally attached, and those who are working
part-time for economic reasons. While
the U3 Unemployed was 7.8 million and the U3 Unemployment Rate was 4.9%, the U6
Unemployed level was 15.4 million and the U6 Unemployment Rate was 9.7%.
in the Labor Force’ component of the Civilian Noninstitutional Population
(CNP) is simply the CNP – Labor Force (LF).
The good news is that 374,000 people returned to the Labor Force from
the ‘not in the labor force’ plus an another 180,000 that were added to the CNP
also ended up in the labor force rather than ending up on the sidelines in the
not in the labor force as had been the case very often over the past several
according the NBER – National Bureau of Economic Research http://www.nber.org/cycles.html,
the recession went from December 2007 – June 2009 --- go figure
the end of the Great Recession in June 2006, there has been much confusion
concerning the employment picture. While
the unemployment levels and unemployment rates (U3 and U6) have fallen
significantly and have nearly returned to normal and employment has expanded as
well, the problem lays in the fact that that so many of those unemployed moved
out of the labor force altogether on a net basis.
have been pointing out various aspects of weaknesses in the labor markets for
the several years in this newsletter, but it really hasn’t been until this very
month that we’ve noticed what might be an indication that things might be
improving. As we’ve also indicated, any
substantial and sustained recovery in the labor markets is dependent on a
number of factors, including more robust economic growth, rational monetary
policy, and international considerations ranging from exchange rates to
improved economic growth.
will be looking into the exchange rate issue and trade balance in a soon to
follow newsletter article.
we noted in the last newsletter article on the GDP Gap from February 21, 2016
it’s imperative that economic growth returns to the prerecession trend line…
The Gross Domestic Product (GDP) Gap:
$1.1 trillion Real GDP; $1.6 trillion Nominal GDP
Improvement in Labor Markets from
October 2015 – February 2016: is this the beginning of the recovery we’ve
looking for, or just another false start?
October 2015 through February 2016, the Civilian Noninstitutional Population
grew by 1.25 million or 250,000 per month.
In the meantime, the Labor Force grew by 2.0 million or 405,000 per
month. This labor force expansion
included: Employment growth of 2.1 million, or 426,000 per month; marginal
growth of the Labor Force Participation Rate of 162%, marginal
Employment-Population Ratio growth of 170%; and a drop in Unemployment (U3) of
110,000, or 22,000 per month.
the ‘Not in the Labor Force’ component of the CNP fell 770,000 from October
2015 through February 2016, or 154,000 per month.
will be wrapping up our series on macroeconomic performance shortly with a look
at inflation, but we will also be delving into other topics including the
effect foreign exchange has on the domestic economy…stay tuned, but in the
meantime be sure to scroll through the following charts and consider what might
affect labor markets going forward.