Labor Market Forecast 2014
The Bureau of Labor Statistics has published its annual benchmark review and revision for the year 2013 that makes it a good time for an assessment of job growth for the future. The increase for the 12 months ending December 2013 is 2.331 million jobs, better than last year. It equals a growth rate of 1.73 percent for the 12 months of 2013. The growth rate of establishment jobs is faster than the growth rate of the adult civilian population and labor force, indicating a modest progress for the 2013.
During the recession of January 2008 to February of 2010 jobs declined 8.78 million, a 6.33 percent decrease in non-farm establishment employment. After the turnaround beginning March 2010 until December 2013 non-farm establishment jobs recovered 7.7 million to just over 137.4 million, a little over 89 percent of the recession losses.
Almost all of the short term changes for the 12 months ending with December 2013 followed the same long term trends from as far back as 1990. That is the industry sectors that showed a declining share of total non-farm employment in 2013 also have a declining share of jobs from 1990 to 2013, and vice versa for the industries with an increasing share.
The Declining Share of Goods Production
Combined goods production jobs were 13.7 percent of non-farm employment in 2013, down 7.9 percent from 1990. Natural resources - logging and mining – have only 868 thousand jobs, less than one percent of non-farm employment, which is a .1 percent smaller share of 2013 employment than 1990. In spite of recent growth construction employment remains 1.86 million below its 2006 high of 7.7 million. A sustained increase in construction will be necessary to bring a recovery of construction jobs.
Manufacturing is the biggest disappointment for 2013 with an employment gain of only 78 thousand jobs with an anemic growth rate of .65 percent, well below the national average. The 2012 gain was 201 thousand, but manufacturing gains do not signal a turn around of decline in manufacutring.
The Declining Shares in Service Production
Services sectors in wholesale and retail trade, utility services, information services, financial and real estate services, repair and maintenance services and federal government ,and state and local government excluding education had their share of non-farm employment decrease in 2013 as they have been doing since 1990. Combined these services were 32.9 percent of non-farm employment at the end of 2013, down 3.9 percent from 1990.
Combined goods production and long term declining service sectors have 46.6 percent of jobs, but it is the percent of jobs left after two decades of decline that shows no sign of reversal. In the service sectors like trade and finance computer technologies have raised productivity and cut job growth. Higher productivity has cut jobs in manufacturing, but also millions of manufacturing jobs are now offshore. A trickle of these jobs have come back giving hope that foreign wages will rise relative to the decline in U.S. wages, but it will take more than hope to create new manufacturing jobs. American companies will have to invest more here and less abroad.
The Increasing Shares in Service Production
Service sector industries in transportation, professional and technical services, establishments managing companies, administrative support services, arts, entertainment, recreation, food services and restaurants, personal services and health care had their share of non-farm employment increase in 2013. Combined these services were 41.4 percent of non-farm employment at the end of 2013, up 10.3 percent from 1990.
Educational services and non-profit associations fell below their long term trends for 2013. Private schools, state education at colleges and local education in the public schools had more jobs for 2013, but just barely. The total increase was a couple thousand, which cut the share of education in total non-farm employment. Non-profit associations lost a few thousand jobs, and therefore its percentage share declined as well. Combined these two services were 12.0 percent of non-farm employment at the end of 2013, up 1.6 percent from 1990, but down about .2 percent for 2013.
In 2013, the big gainers were in administrative support services that generated 422 thousand new jobs for the 12 months ending December 2013. Temporary help services had 227 thousand of the 422 thousand jobs, which was the biggest individual increase in jobs that also have a higher percentage of U.S. non-farm employment. Firms and establishments in administrative support services contract office and facility support services, and do employment placement services, executive search services, telephone call centers, investigation and security services, exterminating and pest control services, janitorial services, landscaping services, carpet and upholstery cleaning services all gained jobs with a continuing increase in their percentage of non-farm employment for 2013.
Other big gains came at restaurants with 341 thousand new jobs; more new jobs than logging, mining, construction and manufacturing combined; more new jobs than the health care sector including social services. Full service restaurants, fast food restaurants, bars and coffee bars are all growing at two to three times the national average of job growth.
The health care increase of 308 thousand jobs for the 12 months ending December 2013 was well below last year’s increase of 469 thousand. The increase came even though hospital employment dropped over the same 12 months.
Professional and technical services had third place among sub-sectors with a growing percentage of employment. The new jobs here totaled 204 thousand for the 12 months ending December 2013. However, 60 percent of the gains in professional and technical services were in computer design and related services and managerial and technical consulting services; another 20 percent were in architectural and engineering services.
Good job opportunities continue for Baccalaureate degree students in computing, still the most employable BA degree. The many new jobs in managerial and technical consulting service offer career employment, but the competition for these jobs has started to push up degree requirements. An M.B.A. may be about to replace the BA as an entry degree.
Architecture and engineering did well with 40 thousand new jobs for the 12 months of 2013. However, new architecture and engineering graduates have to compete with other engineers who have left the construction and manufacturing industries to look for work at specialty architecture and engineering firms. The new employment is not necessarily entry level jobs.
Other professional employment has slow growth and college graduates will find it harder to get started in a professional career. Legal services generated only 4 thousand new jobs in the 12 months ending December 2013. The best jobs at law firms require a law degree, although a BA degree has an entry degree for a paralegal. Paralegal employment is growing faster than lawyers.
Accounting firms hire BA degree candidates but accounting firms generated only 10 thousand new jobs in the 12 months ending December 2013. Scientific development and research services generated 45 thousand new jobs for the 12 months of 2013. The best jobs here require advanced degrees although there are many assistant research positions for BA candidates.
A Growth Rate for the next Decade
There are several approaches to labor market forecasts. One starts with a projected growth rate for non-farm employment based on long term trends with consideration for productivity, and expected social and political events. Then the projected total increase can be divided by industry sector and individual industries based on the trend of year by year share changes for individual industries. A second approach starts with projected growth rates for individual sectors and builds up, or adds up the total; both can be tried and compared.
The latest forecast from the Bureau of Labor Statistics for non-farm establishment employment for the ten years ending 2022 is 1.09 percent a year. The annual average growth rate of the adult civilian population from 1990 through 2013 is 1.14 percent, and from 2000 to 2013 it was 1.12 percent. Theoretically establishment jobs and the civilian labor force can grow faster than the adult population if those not in the labor force look for work or find jobs that help expand establishment employment. Those with work or those looking for work are part of the civilian labor force, which has settled at 63 percent of the adult population in recent years. The other 37 percent of the adult population not in the labor force could decide to look for work and take jobs, which theoretically allows jobs to grow faster than population growth.
In practice it has not happened. From 1990 to 2013 the growth rate of the civilian labor force averaged .92 percent per year; from 2000 to 2013 it was .66 percent. From 1990 to 2013 the growth rate of those not in the labor force averaged 1.98 percent per year; from 2000 to 2013 it was 1.56 percent.
The long term growth rate of establishment employment from 1990-2013 averaged .96 percent per year. Therefore, the Bureau of Labor Statistics forecast of 1.09 percent, slightly above the long term growth of jobs and slightly below population growth, pushes their forecast into a moderately optimistic range.
Annual growth rates in establishment employment are subject to cyclical fluctuations from expansion or recession. In the decade of 2000-2010 there were five years where one year of change decreased and five years where one year of change increased. The high year growth rate was 1.8 percent for 2005 to 2006, which was the high point of the housing bubble. The low year growth rate was -4.34 percent for 2008 to 2009, after the housing bubble and stock market bubble burst and the economy sank into recession.
Last year’s growth rate of 1.73 percent includes some increase of jobs from cyclical expansion. Year to year forecasts can allow for cyclical fluctuations by allowing for expected fluctuations in GDP, but the year to year forecasts in this report allow for long term trends of the individual industry sectors of the economy. When I compile my forecasts for the separate industries I get an annual growth rate of 1.07 percent.
A 1.07 percent forecast means 1.530 million new jobs in the coming year 2014, or an average of 127.5 thousand new jobs a month. That is the non-cyclical forecast applied to a year, which like the BLS forecast is on the optimistic side. The country has relied on a limited range of industry sub-sectors to create employment for the last decade at least, and especially since the recession ended.
Some Forecast Details
The separate industry forecasts include recovery in construction but a slow, steady erosion of jobs in manufacturing with a small net annual decline in combined goods production jobs and its continued loss of percentage share of employment that has to be made up elsewhere. The forecast calls for 1.4 percent decline in share over the next 10 years, a smaller decline compared to the 5.0 percent decline from 2000 to 2013.
Two services are forecast to lose jobs and percentage share: utilities and information services. Information services, primarily telecommunications and publishing, but also broadcasting, motion pictures and the Internet services, has been declining; all use computer technologies. Utilities are also in decline from productivity and mergers. The forecast calls for a 13 thousand new jobs a year with a .3 percent decline in share over the next decade, less than the .8 percent decline since 2000.
Wholesale and retail trade, finance and real estate are forecast to have more jobs, but not enough new jobs to prevent a continued decline in percentage share of these services. The forecast calls for 0.6 percent decline in share over the next 10 years, a smaller decline compared to the .9 percent decline from 2000 to 2013.
Unpredictable politics affects government forecasts. In the past few years government employment declined with the most political pressure for cuts coming to the Federal Government. The Federal government has declined from 2.9 percent of non-establishment employment to 2.2 percent in 2000, and 2 percent in 2013. The forecast calls for a decline in federal employment from 2.7 to 2.5 million over the next decade, a decline or nearly .4 percent over the decade.
State and local government including education is up from a 13.6 percent share of non-farm employment in 2000 to 14.0 percent in 2013. However, all of the .4 percent share increase comes in public education. State and local excluding education has a 6.5 percent share in 2013 as it did in 2000. The forecast calls for a decline of .6 percent share of state and local government for the next 10 years.
Private education is up from 1.8 percent to 2.5 percent of establishment employment from 2000 to 2013. However, the growth of public education has slowed down in the last 3 years and slowed down enough that its percentage share has dropped since 2010. For the last three years private education has replaced jobs in public education. The forecast calls for a combined private and public education increase of .8 percent in share over the next decade, a smaller increase than the 1.0 increase since 2000.
Transportation, business and professional services, health care, leisure and hospitality, especially restaurants, and personal services will be the primary sources of new jobs in the next decade. The forecast calls for a 6.8 percent increase in share over the next decade, a smaller increase than the 10.3 percent increase since 2000.
A Difficult Task
To create an average of 125.7 thousand jobs a month will be difficult. Too many industries cannot contribute many new jobs even if the economy does well. Wholesale and retail trade and finance are two examples. Trade remains 560 thousand jobs below its highest job total which came in November 2007 right before the recession started. However, its percentage share of non-farm employment at that time was down from 2000 and from 1990. Given the automation from computer technology no realistic forecast would predict an increase in jobs that reverses that downward share trend.
Finance remains 493 thousand jobs below its highest total which came in November 2006, right as the housing bubble started. Like trade, the financial activities share of total non-farm employment was down from 1990 and 2000. Job totals have stabilized in the last few years, but it’s share of jobs keeps falling. Given the automation from computer technology no realistic forecast would predict an increase that reverses that downward share trend.
The country must rely on the industries with a long run trend of rising share to take up the slack and provide enough jobs if there are going to be enough jobs. Health care needs a minimum of 30 to 31 thousand new jobs a month. Because the forecast has declining sectors declining at a slower rate than they have been, the expanding sectors are in turn forecast to increase at a slower rate than they have been to make up the difference, but they must increase.
Combined government jobs are down almost 700 thousand jobs since the recession ended. Whether they will stop falling, increase or decrease, depends more on politics than the private sector forecasts, but declining government payrolls take money out of the spending stream that hurts private sector employment as well.
Except for professional services like computing and management consulting, the remaining services sectors with long term growth are also sectors with low wages and also prone to a high percentage of recessionary layoffs. Restaurants, arts, entertainment, recreation and personal services have a larger share of jobs in 2013 than 2000 and 1990, but they are more cyclical than education and health care.
In sum, I have made a cautious non-cyclical forecast of annual average increase in jobs for a decade. Time will tell just how good it is.
Monday, April 21, 2014
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