Employment growth continues slowly

Each year at the end of January, the U.S. Bureau of Labor Statistics updates its monthly seasonal factors and revises its nonfarm payroll employment numbers. This year, the revised employment numbers indicate that job growth in the United States may have been stronger than previously estimated. Chart 1 below shows monthly nonfarm employment from January 2010 through December 2012 before and after the latest revisions.

Chart1

According to the latest revision, there were some 647,000 more nonfarm payroll jobs created since January 2010 than originally estimated, with more than half of them created during calendar year 2012.

While this is good news, the unemployment rate in the United States in January 2013 remained at 7.9 percent; and the fact remains that there are fewer people working today than at the start of the recession. In fact, since the start of the recession in December 2007, we have lost over 9.0 million jobs. Through January 2013, only 5.8 million new jobs have been created. This means that nonfarm payroll employment levels are still running 3.2 million behind where they were when the recession began. Chart 2 shows U.S. nonfarm payroll jobs gained and lost by sector since January 2008, when U.S. nonfarm payroll employment peaked.

Chart2

In the private sector, the industries that have been the slowest to recover include manufacturing, construction, trade and transportation, information technology, and financial activities. In total, these sectors are still down a total of 5.2 million employees. The public sector is still down by 512,000 employees, with local governments accounting for 89% of those job losses. It is no surprise that local governments have been the hardest hit, given the impact falling real estate price have had on revenue generation in many local communities and school districts throughout the country.

On the plus side, the biggest employment gains can be seen in the education and health services, leisure and hospitality, and mining and logging sectors. Health services alone has added 1.6 million jobs, accounting for half of all jobs created since the start of the 2008 recession. In fact, that sector has added jobs in every month since December 2007. This is a pretty remarkable feat, given the severity of the recession.

How has Michigan fared? Unlike the U.S., in Michigan nonfarm payroll employment actually peaked in April 2000 at 4,691,100 jobs. Michigan continued to lose jobs from then through the start of the 2008 recession. By January 2008, Michigan’s total nonfarm payroll employment had fallen by 450,000 jobs. After the 2008 recession started, Michigan lost an additional 413,300 jobs before bottoming out in July 2009 at 3,827,800 jobs. This is a total job decline from peak to trough of 863,300 jobs or 18.4% of all nonfarm payroll employment in the state.  In December 2012, Michigan’s nonfarm payroll employment was reported to be 3,973,300, which is an increase of 145,500 jobs since July 2009. However, from peak to trough, Michigan is still down 717,800 nonfarm payroll jobs.

Chart 3 shows Michigan’s nonfarm payroll jobs gained and lost by sector since the start of the 2008 recession. Since the recession began, Michigan is still down 267,800 payroll jobs.

Chart3

Even with the recent job gains in the auto industry, Michigan’s manufacturing employment is still down 76,900 jobs from the start of the recession. However like the nation as a whole, Michigan has seen fairly steady job growth in the education and health services sectors. The good news is that, relative to the nation’s, Michigan’s job recovery has been somewhat stronger, albeit from a much lower base. Charts 4 and 5 show the percentage change in nonfarm payroll employment for the United States and Michigan by major category and by sector from the start of the recovery through December 2012.

 Chart4&5

As these data indicate, Michigan has seen stronger total growth than the nation since the start of the recovery, with private sector job growth overshadowing losses in the public sector. The auto recovery also shows up better in these charts, as Michigan is shown posting an 18.8% increase in manufacturing jobs compared with only 2.5% for the nation. The question is whether this trend will continue. Chart 6 shows total U.S. manufacturing employment by month from January 1960 to January 2013.

Chart6

Here we see that, even taking into account the cyclicality of the 1960s and 1970s, manufacturing employment remained fairly stable through the end of the 20th century. However, since the beginning of the 21st century, manufacturing employment has fallen by about 5.3 million jobs. More recently there has been talk about a manufacturing resurgence in the United States. This discussion started following the Japanese earthquake and tsunami when supply chains for some industries experienced major disruptions to production throughout the world. The debate centered on the need to minimize risk, even if it meant higher prices for some commodities and component parts. More recently, new technologies for extracting natural gas and petroleum products from shale rock have led some to argue that the availability of low-cost energy could make the U.S. more competitive and lead to the return of some manufacturing jobs. This debate is ongoing.

On April 8–9, 2013, the Chicago Fed’s Detroit Branch will host an event to discuss the impact of enhanced domestic recovery of natural gas and other fuels on industries and regional economies. The conference will focus on the shifting markets, development opportunities, and economic outcomes resulting from increasing shale gas and oil extraction in the United States.

For further details on the conference, including a complete agenda and information on registration, location, and accommodation, please visits our conference webpage.  

http://chicagofed.org/webpages/events/2013/detroit_energy.cfm

 

 

 

 

 


[1] Michigan’s employment data will be revised on March 16. We do not expect significant changes, but I will provide a review of the revisions in a subsequent blog.

Price Decisions

Written by Martin Lavelle

As promised, we will tackle not only research topics in our blog, but also personal finance and economic education topics; because these are additional areas we focus on at the Detroit Branch of the Chicago Fed. This past Friday, I had the pleasure of speaking with high school students from Northwest H.S. in Jackson, MI, and one of the subjects they were interested in learning more about was the pricing of goods and services. While labor, material, and transportation costs figure prominently into constructing prices, so do the anticipated responses, or price elasticities by customers to a set price.

In the Managerial Economics class I teach at the University of Michigan-Dearborn, one of the subjects we cover near the end of the term is price discrimination. Price discrimination is the practice of charging different prices to consumers for the same good or service. In order to practice price discrimination, a firm must have some market power. Farmers are unable to practice price discrimination because they’re in a more competitive market and are forced into the position of “price-taker,” settling for the market price.

“Price-setters” can execute one of the three types of price discrimination, as explained in a video lesson by Jason Welker. Between his notes page and video lesson, Welker does a great job detailing the different degrees of price discrimination and examples of each. Third-degree price discrimination is the most common form of price discrimination practiced by firms. Every time you go to the movies, you are subjected to third-degree price discrimination. Movie theaters try to maximize their revenue by charging different prices for tickets to different groups and at different times of the day. For example, students with a student ID are charged lower prices because they are arguably more sensitive to price changes than an adult couple who are enjoying date night. Amusement parks such as Disneyland provide more examples of third-degree price discrimination. You can buy one-day or multi-day passes. You can go to Disneyland or California Adventure Park separately. Another option is for you to stay at the hotel for multiple days and visit the parks over that time. Each option comes with a different ticket price.

Second-degree price discrimination occurs when firms post a schedule of declining prices for different ranges of quantities. Consumers decide how much to purchase based on their forecasted usage. Anything you buy in bulk, in which the price per unit you pay for goods or services declines as the quantity you purchase increases, is an example of second-degree price discrimination. The various ticket plans offered by sports teams that have become increasingly popular in recent years as athletic departments and professional sports teams try to maximize their revenue could be considered as second-degree price discrimination. Historically, sports teams like the Detroit Tigers offered season ticket and group packages in addition to single-game tickets. Now, in addition to the usual 81-game season ticket package, the Tigers offer 41-game packages, weekend packages in which you can buy season tickets for weekend home games, and 15-game packages for those baseball fans that can’t make it down to the ballpark as frequently.

First-degree price discrimination is the least common form of price discrimination practiced, because it requires the firm to charge each individual consumer the respective maximum price they’re willing to pay for a good or service. This implies firms possess a lot of information about their consumers and their buying habits. Until recently, one of the best examples of first-degree price discrimination was auctions. When you buy something at an auction, you reveal how much you’re willing to pay for a particular item. However, in recent years through the use of information technology, firms have acquired consumer information that in some cases allows them to cater to individual consumers. The June 30, 2012, edition of The Economist gives examples of how firms are using information technology to develop price discrimination strategies.

Price discrimination, while it does imply that firms are exerting market power, may not necessarily be bad news for consumers. If there is competition among suppliers in a market, and few barriers to new suppliers entering a market, consumers may sometimes be well-served by more customized pricing practices. However, concerns over firms exhibiting monopolistic or oligopolistic power may arise as firms gain more market share; such practices are illegal if they result in firms violating anti-trust policies. The Supreme Court has ruled that price discrimination claims under the Robinson-Patman Act should be evaluated in a manner consistent with broader anti-trust policies. In practice, Robinson-Patman claims must meet several specific legal tests:

  1. The act applies to commodities, but not to services, and to purchases, but not to leases.
  2. The goods must be of “like grade and quality.”
  3. There must be likely injury to competition (that is, a private plaintiff must also show actual harm to his or her business).
  4. Normally, the sales must be “in” interstate commerce (that is, the sale must be across a state line).[i]

Teachers who would like someone from the Detroit Branch to visit and present at their school should contact Katherine Nelson at 313-964-6170 or Martin Lavelle at 313-964-6150. We’ll do our best to accommodate your needs.

In addition, please consider attending our next “Teacher Night at the Fed” at the Detroit Branch on March 6. More information can be found here.

 

 

 


[i]http://www.ftc.gov/bc/antitrust/price_discrimination.shtm, “Price Discrimination Among Buyers: Robinson-Patman Violations,” 11 Feb 2013.

The U.S. and Canadian Economies Continue to Improve Slowly

In an earlier blog entitled “What is Canada’s Role in the U.S. and Michigan Economies?,” I talked about the link between the economies of the United States and Canada and what role Canada might play in Michigan’s economic recovery. These topics were discussed in more detail at the Canada–United States Business Association’s (CUSBA) Economic Outlook for 2013. I was fortunate enough to be asked to speak at this event, along with Martin Schwerdtfeger, senior economist for Toronto-Dominion Bank. Here are some of the main points that were presented during the discussion.

I opened the discussion with a brief summary of the U.S. economy. The most recent data through December suggest that growth in U.S. economic activity has paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment has continued to expand at a moderate pace, but the unemployment rate remains elevated. On a positive note, the recently revised employment numbers indicate that total nonfarm payroll employment had increased by as much as 647,000 more than originally thought. Based on advanced estimates from the Bureau of Economic Analysis comparing the fourth quarter of 2011 with the same period in 2012, we see that total GDP grew by 2.2 percent, personal consumption expenditures increased by 1.9 percent, and gross private domestic investment advanced by 9.6 percent. Headwinds to this growth were net exports of goods and services (–0.7 percent) and government consumption expenditures and gross investment (–1.7 percent).

I then went on to discuss the U.S. consumer. When talking about the consumer, it is important to distinguish between the consumer’s ability and willingness to consume. On the ability side, the consumer has seen some recent improvements in real disposable income and an improved debt position evidenced by lower debt service ratios, low inflation rates, and low interest rates. However, on the willingness side, the consumer remains skeptical because of slow job creation, which has led to stubbornly high unemployment rates; and although the consumer’s household net worth has improved, home prices remain well below their previous peak. In addition, slower global growth expectations, higher payroll taxes, and potential fiscal spending cuts continue to add to uncertainty. Combined, these factors have kept consumer attitudes, as indicated by the University of Michigan’s Consumer Sentiment Index, at near recessionary lows since 2008.

One positive for Michigan and the Midwest economy has been the consumer’s increasing propensity to purchase automobiles. Light vehicles sales in the U.S. increased to 14.4 million units in 2012, which was an increase of 4.0 million units from the industry trough reached in 2010. According to analysts’ forecasts, auto sales are expected to continue to increase in 2013, reaching 15.0 million units, due to pent-up demand, an aging vehicle fleet, and the consumer’s desire to take advantage of the better fuel economy featured in some of the newer products on the market.
Transitioning to a discussion on the Canadian economy, Schwerdtfeger pointed out that Canada’s economy has long been closely tied to the economic health of the United States. According to Schwerdtfeger, Canada’s economy had outperformed the economies of other developed countries since 2007, led by growing consumer spending and a vibrant housing market. However, the housing markets in Canada appear to have peaked, and consumers are becoming more cautious about adding to their debt. Schwerdtfeger went on to say that, over the next few years, growing exports to the U.S. will likely help to sustain at least modest economic growth for Canada. But once the final figures are in for 2012, Canada’s almost seven-year run of outperforming the United States will likely come to an end.

On the international front, Schwerdtfeger warned that concerns over the U.S. fiscal outlook and a continued drag from the European recession will most likely negatively impact Canada’s economic performance in 2013. Fiscal consolidation in the U.S. alone could shave as much as 0.7 percentage points off Canadian economic growth through declining exports and knock-on-effects to other areas of the Canadian economy. Beyond mid-year, Schwerdtfeger suggested that U.S. economic growth could improve enough, based on stronger real estate activity, to support a modest increase in Canadian exports. Still, an overvalued Canadian dollar, elevated household debt, and government restraint will likely keep Canada’s overall pace of economic expansion in check. Schwerdtfeger saideconomic growth for Canada in 2013 and 2014 is forecasted at 1.7 percent and 2.5 percent, respectively. Faced with this continued sub-par performance of the economy in the near term, the Bank of Canada will be in no rush to raise interest rates earlier than 2014, unless growth at the end of this year exceeds current expectations.

Please use the links provided here to view Martin Schwerdtfeger’s presentation and Paul Traub’s presentation file.