The U.S. Economy is Strong, But Fragile

By Richard Works

How might the current economy be impacting employers, employees, and human resource professionals? In this article we’ll examine historical and recent data published by the U.S. Bureau of Labor Statistics. We’ll use labor force statistics data from their Current Population Survey, employment data from their Current Employment Statistics national survey, and business employment dynamics data from their Quarterly Census of Employment and Wages program. The data in this analysis have been seasonally adjusted so that regular fluctuations which are experienced each season, such as increased summer or holiday employment, may be discounted from the larger picture. This will provide a pure analysis of the labor market and economy.

First, we’ll examine labor force statistics data from the Current Population Survey. Figure 1 explicitly shows (in thousands) the number of people employed, unemployed, and those not in the labor force, seasonally adjusted from January 2000 to January 2019. However, the civilian noninstitutional population 16 years and over, and the number of people in the labor force are implicitly shown as well. The referenced population can be deduced by adding the number of people employed, the number of people unemployed, and those not in the labor force. In other words, the total population would be the full shaded area of Figure 1. Similarly, the total number of people in the labor force can be deduced by adding the number of people employed with the number of people unemployed.

We see from Figure 1 that the population has increased from 211.4 million in January 2000 to 258.2 million in January 2019. Similarly, the labor force increased from 142.3 million to 163.2 million during that same time period. The number of individuals in the labor force can be divided between those employed and those not employed, but seeking employment. The number of people employed increased from 136.6 million in January 2000 to 156.7 million in January 2019, and the number of people unemployed went from 5.7 million to 6.5 million during that same time period. The number of people not in the labor force was 69.1 million at the start of 2000 and 95 million by January 2019.

Another look at the data, shown in Figure 2, considers the labor force participation rate, employment-to-population ratio, and the unemployment rate. The labor force participation rate is calculated by dividing the number of people in the labor force by the number of people in the civilian noninstitutional population 16 years and over. For example, the number of people in the labor force in January 2019 was 163.2 million and the referenced population was 258.2 million. Therefore, the labor force participation rate for January 2019 was 63.2% (163.2/258.2). Similarly, the employment-to-population ratio is calculated by dividing the number employed by the referenced population. This ratio shows that 64.6 percent of the population was employed in January 2000, and now in January 2019, 60.7 percent of the population was employed.

On the other hand, the unemployment rate is calculated by dividing the number of people unemployed by the number of people in the labor force (not the population). For example, the number of people unemployed in January 2019 was 6.5 million and the number of people in the labor force was 163.2 million. Therefore, the unemployment rate for January 2019 was 4%. The percentages for the labor force participation and employment-to-population are shown on the left on Figure 2 with the unemployment percentage shown on the right. Similar to how we calculated the employment-to-population ratio, we can also calculate the unemployment-to-population ratio as well as the ratio of those not in the labor force to the population. These ratios would show us that in January 2019, 2.5 percent of the population was unemployed and 36.8 percent of the population was not in the labor force. These data account for the whole population: 60.7 percent employed, 2.5 percent unemployed, and 36.8 percent not in the labor force (60.7+2.5+36.8=100%). However, for official statistics, those not in the labor force are not considered when calculating the unemployment rate, thus the reason the calculation is the unemployed divided by the labor force participation total.

Reviewing Figure 2 shows that during the recession (around 2008), the unemployment rate drastically increased, but the labor force participation rate did not have such a drastic decrease. The decrease that one might expect can be found in the employment-to-population ratio. We see that as the employment-to-population ratio decreased, the unemployment rate increased. Since the labor force participation is made up of those employed and those unemployed, the labor force participation rate would not have changed much since the same number of people is essentially being counted. We see a similar trend around the middle of 2015 with the employment-to-population ratio increasing, resulting in a decreased unemployment rate. However, the employment-to-population ratio shows that we still have a slightly lower percentage of people employed than what was present before the recession, but the trend is optimistic.

To further our investigation, now we’ll incorporate employment data from the Current Employment Statistics national survey. Figure 3 shows the nonfarm employment and the average hourly earnings of production and nonsupervisory employees, seasonally adjusted from January 2000 to January 2019. The nonfarm employment scale numbers are shown on the left on Figure 3 and the earnings per hour are shown on the right. The data show that nonfarm employment increased from 131 million to 150.6 million for the time period of Figure 3. The economy added 304 thousand jobs in January 2019 with average earnings of $23.12 per hour for production and nonsupervisory employees.

The numbers for the total employment is slightly different from those of nonfarm employment. In January 2000, the total employment was 136.6 million and the nonfarm employment was 131 million. For January 2019, total employment increased to 156.7 million with 150.6 million being nonfarm employment. According to these data, nonfarm employment made up 96% of total employment in January 2019. As with Figure 2, the drastic decrease in employment during the recession around 2008 is also apparent on Figure 3. However, the seasonally adjusted average hourly earnings did not appear to experience a decline. In fact, the seasonally adjusted average hourly earnings show a clear linear trend. Using an elementary statistical regression analysis, the seasonally adjusted average hourly earnings for production and nonsupervisory employees may yield a monthly increase of 0.13%. With employment increasing, not much attention is given to the jobs that we may be losing.

To consider how job gains and losses might compare, we turn to business employment dynamics data from the Quarterly Census of Employment and Wages program. Figure 4 shows the gross job gains and losses from 2000 through the second quarter of 2018. The data show that there was a net gain of 914 thousand jobs in the first quarter of 2000. Some volatility was experienced up until the recession, in which some quarters had net gains while other quarters had net losses. In 2008 and through the first quarter of 2010, the data show that we experienced an aggregated net loss of 9.2 million jobs. However, since the second quarter of 2010, the gross gains had been higher than the gross losses (with the exception of 3Q2017) such that the aggregated net gain was 18.8 million jobs. The second quarter of 2018 yielded 7.6 million job gains and 7.2 million job losses for a net of 437 thousand job gains.

Overall, the apparent trend is that employment is increasing; however, the net job gain/loss value are running close. Although we currently have a net gain in jobs, the trend lines show the possibility of a merge or even result in a net loss. Challenger, Gray & Christmas, Inc., an executive outplacement firm based in Chicago, published on January 3^rd that the annual job cut announcements were up 28.6 percent year over year, and was the highest total since 2015. They reported that in the final quarter of 2018, the number of announced job cuts was 42.8 percent higher than in the third quarter of the same year.

Using data from the Bureau of Labor Statistics, we see that the number of nonfarm employment grew by 304 thousand in January, but the total number of people employed decrease by 251 thousand (lowering the labor force participation rate by 11 thousand). This change increased the unemployment rate to 4 percent. If the announced job cut announcements take place as reported by the outplacement firm, this may impact the business employment dynamics statistics, possibly increasing the net loss, depending on how the employment gains compare with the losses. However, it is my opinion that the U.S. economy is strong but fragile. We’re doing well, but the slightest mishaps could steer us in the wrong direction. Note: this may not be the view of the Bureau of Labor Statistics or the U.S. Government. The content of this article is only the work of the author’s research.