May 2017 Jobs Report
Job Gains Tail Off
Monday, June 5, 2017
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Annual job growth ticked up to 1.6% from a revised 1.5% in April, but still at the 12-month average. Annual job gains were 2.266 million, 67,000 less than May 2016’s total but 96,000 more than April’s annual rate. Average hourly earnings (wages) for privately employed workers continued to rise, coming in at 2.5% on an annual basis in May, the same rate as last month and slightly below the 12-month average of 2.7%. The average from June 2015-May 2016 was 2.4%. April’s U3, or “official,” unemployment rate of 4.3% was down from 4.5% in May 2016. The civilian labor force participation rate slipped again to 62.7%, a 20-basis-points (bps) decline from April, but the same level as May 2016. The employment-population ratio of 60.0% also declined 20 bps from the previous month, but is up by 10 bps from last year. The number of part-time workers for economic reasons (5.22 million in May) decreased by 53,000 from April but was down by an incredible 1.2 million from May 2016. The U6 unemployment rate, which includes these part-timers and marginally attached workers, decreased by 130 bps to 8.4% from last May. In addition, the number of long-term unemployed (27 weeks or more) decreased by 37,000 from April to 1.66 million, some 230,000 lower than May 2016. The number of multiple jobholders increased by 112,000 from May 2016 to 7.6 million, but the number of discouraged workers not in the workforce (355,000) decreased by 183,000 from one year ago. Industry Focus The not seasonally adjusted unemployment rate for the oil and gas extraction industry fell a remarkable 860 bps to 2.5% in May, down from 11.1% in 2016. The unemployment rate for three industry classifications with rates below 4% ticked up from last year (Transportation & Utilities, Financial Activities, and Government), while Construction was up 10 bps. The remaining industries had lower rates than last year. The most significant job gains for May occurred in the Education & Health Services (+47,000), Professional & Business Services (+38,000) and Leisure & Hospitality (+31,000) sectors. Four other industries gained at least 6,000 jobs: Other Services (+12,000), Financial Activities (+11,000), Construction (+11,000) and Mining & Logging (+6,000). The remaining industries lost jobs.
Metro Job-Growth Decline Accelerates Nine of March’s top 10 metropolitan areas for job gains returned to the list for the 12 months ending in April (the latest metro-area figures available), though several changed positions. Atlanta, Dallas and New York remained the top three job-gain metros of Axiometrics’ 120 ranked metros, as they were last month. Phoenix moved up to No. 4, displacing Los Angeles to No. 6, while Seattle broke into the top five from No. 7 in March. Riverside slipped one spot to No. 7 and Boston jumped two places to No. 8. Orlando returned to No. 9 as Tampa fell out of the top ten to No. 11. Houston’s rebound is building, as it leapfrogged from No. 18 last month to No. 10. Together, the total jobs created in the top 10 metros in the 12 months ending in April were down 17.4% from March’s annual total (552,300 vs. 668,600), and down an incredible 29% from the 12-month total for April 2016 (552,300 vs. 778,400). A few metros dropped sharply in the rankings: Oakland fell from No. 15 to No. 27, Washington, DC fell to No. 17 from No. 11 and San Diego fell from No. 20 to No. 33. In addition to Houston, a few other metros jumped up in the rankings from March: Las Vegas jumped from No. 22 to No. 15, Denver moved from No. 19 to No. 14 and San Antonio moved from No. 29 to No. 21. Annual job growth slowed in all but two of the top 10 markets in April:
Job growth was up in:
Milwaukee, Tulsa and Newark remained in the bottom five from last month, as these metros continue to deal with their respective economic difficulties. Layoffs and cutbacks in state government employment (-900) have hurt the Mobile economy, while Virginia Beach was hit hard by previous cutbacks in ship building that caused losses in retail trade (-4,100) and Leisure & Hospitality (-2,000). Interestingly, all bottom five metros saw declines in their monthly not seasonally adjusted unemployment rates compared to one year ago, despite job losses as reported above. The reason for this is the different surveys used to measure employment and unemployment, as seen in the following table.
The unemployment rate comes from the Current Population Survey or “Household” survey, while the regular nonfarm employment data comes from the Current Employment Statistics Survey or “Establishment” survey. As their name implies, they survey different entities to measure the number of people with jobs, whether self-reported through household members, or from employer establishments. Aside from the different survey respondents and methodologies, the main reason for the incongruent results of job losses and falling unemployment rates is the decline in the labor force in four out of five of these metros. Newark showed the largest drop in their labor force of greater than 20,000; a large part of that was a decline in unemployed of almost 15,000. Perhaps these people fell out of the unemployment insurance ranks and stopped looking for work. Similar situations occurred in a few of these other bottom markets. Since the respondents to the household survey can be multiple job holders and self-employed, there is greater variation and volatility in the employed/unemployed figures released through this survey. An interesting phenomenon of declining unemployment rates and declining employment to be sure, and one that bears watching. Please contact us if you have any questions.
Much Ado About Nothing? Minimum Wage Impact on the Apartment Market The tightest labor market in a decade has revived an age-old debate on the economic consequences of minimum wage hikes. With the federal government largely ceding its role in setting the minimum wage to lower levels of government, cities and states are now the central actors in a controversy with wide-ranging implications. Rather than looking at how the minimum wage impacts labor markets, per se, we ask: How does the minimum wage affect local apartment markets? On one hand, an increase in low-income wages with no attendant change in employment levels could cause demand for apartments to grow, while at the same time causing rents to increase as landlords account for local renters’ increased buying power. On the other hand, if minimum-wage hikes cause employers to shed lower-paying jobs, low-wage workers will likely exit the market, putting downward pressure on apartment demand and rents. But if the rent decreases are not large enough to accommodate the very workers who benefit from an increase in the minimum wage, then there might be no overall improvement in apartment affordability. A cursory analysis of specific apartment markets affected by changes in the minimum wage will help determine if there exists prima facie evidence of distortions in housing markets as a consequence of hikes in the minimum wage — or if the interplay of larger supply and demand factors dominate. For example, consider the case of Sunnyvale, CA — part of the San Jose metro area — which, on the way toward a $15 minimum wage, initiated the first major hike in January 2015, from $9 to $10.30 per hour. The unemployment rate in Sunnyvale trended downward after the January 2015 minimum wage hike. However, the downward trend in unemployment began well before the minimum wage increase became law. It isn’t clear that employment levels were impacted by changes in the minimum wage — especially considering that changes in the unemployment rate were similar in Sunnyvale, its larger metro area, and the state as a whole. Rent growth in Sunnyvale began a sharp decline after the first significant minimum wage hike was implemented. While it’s tempting to assume that the increasing minimum wage caused rental growth rates to decline, the situation is complicated by well-above-average new supply levels in the year before the higher minimum wage was adopted. Three times the annual average new supply levels were added in 2014 alone — enough to dent the incredible rent increases that re-ignited in 2013. In other words, after taking into account the supply and demand fundamentals, there is no clear-cut evidence of an impact on rents. Within the same metro area, Mountain View, CA raised the minimum wage in January 2016 from $10.30 to $11 per hour. As in the case of Sunnyvale, there is little indication of a change in the trajectory of unemployment in Mountain View. The series follows a similar trend as the larger metro area (composed of municipalities with different minimum wage requirements), and the state as a whole. Likewise, the rental growth rate continued its downward slide from the early 2015 peak. This is just what we would expect, given the nearly 300% increase in new supply in 2015 compared to Mountain View’s long-term average. Economists have also looked at Seattle’s minimum wage experiment, which is an interesting case study given the city’s outstanding job growth and apartment construction activity. A report by the University of Washington found that after increasing the minimum wage to $11, low-wage workers in Seattle gained an additional $13 a week in wages (after accounting for other relevant factors). Using (generous) back-of-the-envelope calculations, a low-wage worker in Seattle might find their annual earnings increase by about $700. However, in the year after the new minimum wage standard went into effect, the average rent for Class C apartments (which more likely cater to lower-wage workers) increased by about $1,300 a year. In other words, the most generous assumptions of low-wage workers’ earnings are not enough to keep pace with rent growth in Seattle. What does this tell us about the impact of minimum wage increases on the apartment market? In the two California case studies considered, rental growth rates certainly moderated after minimum wage increases went into effect. In fact, rents in both Sunnyvale and Mountain View actually declined beginning in late 2016. On one hand, this might support the argument that minimum wage increases put downward pressure on apartment rents. But as Seattle demonstrates, the very workers who stand to benefit from minimum wage increases still do not earn enough in a year to afford the average Class C apartment. At the same time, the unique supply and demand fundamentals in the San Jose and Seattle metro areas appear to better explain changes in apartment rents than exogenous municipal-level policy decisions. Careful attention to policymaking at the city and state levels is an important component of an overall strategy. But as this cursory analysis demonstrates, in terms of impacts on the apartment market, larger market forces likely swamp changes in the earnings of low-wage workers.
By the Numbers The following table shows April 2017 (the latest data available) metropolitan-area job gain and job growth, some grouped by state or region.
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