2 Underappreciated US Labor Market Indicators

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2 Underappreciated US Labor Market Indicators

We had to bump our customary review of the latest US Employment Situation Report last night for our Market Outlook Survey results; therefore, today we will catch up with last Friday’s Jobs Report.

The headline numbers were obviously fine, with 196,000 jobs added and an unemployment rate of 3.8%. We’ve also been keeping you up on the weekly Initial Claims data, and Thursday’s report showed just 202,000 workers filing for their first unemployment insurance check. That was better than we thought possible at this point in the cycle and was the smallest number since December 1969.

To get underneath those top-of-house data points we look at the US labor market data through the lens of 2 less-analyzed measurements:

#1: African American unemployment. The academic literature on this topic, based on the historical record, shows that this demographic group is disproportionately negatively affected at the start of an economic downturn. As much as we hate that idea, the research is sadly clear, and it means we need to watch this data for signs of US labor market softening.

Fortunately, the latest Jobs Report data shows decent numbers:

  • African American unemployment was 6.7% in March 2019, the lowest reading of 2019. The trough for this cycle (and a record back to 1972, when the data was first collected) was in May 2018 at 5.9%.
  • This group’s participation rate in the US labor force is currently 62.1%, less than 1 percentage point away from the national average of 63.0%. Five years ago, that spread was twice as high (61.3% vs. 63.1%).
  • One widely-cited paper with a historical analysis on the data: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3000014/

#2: Employment trends for those workers without a 4-year college degree.Only 41% of the US workforce has a BA/BS credential, and the unemployment rate for this cohort is basically at frictional levels: 2.0% as of March 2019.

Here is how the 59% of the workforce without a bachelor’s degree is doing:

  • No high school diploma (7% of the workforce): 5.9% unemployment, up slightly from the prior 3-month trailing average of 5.6%. 

    Participation rates are spiky but generally higher just now at 46.1% versus 45.8% a year ago.
  • High school degree but no college (25% of the workforce): 3.7% unemployment, close to the prior 3-month average of 3.8%.

    Participation rates sit at 57.9%, up from 57.1% a year ago.
  • Some college/associates degree (26% of the workforce): 3.4% unemployment, close to the prior 3-month average of 3.3%.

    Participation rates are currently 65.2%, down from 65.6% in March 2018.

The bottom line to all this: the US labor market looks strong and shows no obvious signs of near term weakening. African American unemployment remains near record lows, even as participation rates rise. Very good news there. Unemployment for those workers with the least amount of formal education now stands at or near record lows, and participation rates are rising as well. Also good news.

Now, you might be thinking, “If everything is so good, why is everyone saying American capitalism is broken?” and that’s a fair question. The answers include poor long-term wage growth, the excessive cost of a college education, and inevitable technological disruption to the labor force in the not-too-distant future. All very valid concerns, and we’ve discussed all of them in these notes.

Our point here is more parochial but still important: the US labor market is, at present, on very solid footing. This late into an economic cycle, that is a welcomed positive for investors.