Third and State

Pennsylvania added an average of 1,300 jobs a month between September 2011 and August 2012. In light of that, September was a veritable tsunami of jobs, as the Pennsylvania Department of Labor and Industry explains:

Seasonally adjusted total nonfarm jobs in Pennsylvania were up 17,800 in September to 5,733,900, the largest monthly gain since February 2012. Following an upward revision to the August jobs count, Pennsylvania has shown a two-month gain of 23,800 jobs.

Holy Jack Welch! Did you just say tsunami of jobs? Didn't Pennsylvania's unemployment rate rise a bit in September? What's going on? I explain here.

So what drove this month's very large increase in employment in Pennsylvania? Let me begin with some boring explainers.

• As always, any one-month change in employment data should be interpreted with caution — so kids don't try this at home! 
• In the analysis that follows, I am going to move between seasonally and not seasonally adjusted data. One of the challenges of knowing which direction the economy is going is sorting through the normal seasonal pattern in hiring — think of education: employment is expanding and contracting at the start and end of each school year. Those expansions and contractions, especially when added up across all industries, make it difficult to judge the overall direction of employment in the economy. A statistical procedure is used to judge past patterns of seasonal employment expansions and contractions across each major industry. The procedure smooths out the monthly employment patterns we see and allows us to make an educated guess about the overall direction of employment. Examining both the not seasonal and seasonal employment data can sometimes be helpful in understanding especially large monthly changes in employment.
• I like to index a lot! I also like staplers! Indexing provides a simple way to compare trends in employment. Here is a quick rule of thumb to help you read the following graphs that are indexed. If the end point on a graph is 104, you can say that compared to the starting point 100, employment increased by 4%. If the end point is 120, employment increased 20% compared to the starting point.
• Not all industry data are seasonally adjusted. The smaller the industry, the more likely there is only not seasonally adjusted data available. To deal with this, I often take a 12-month moving average of employment in that sector. It's a crude way of doing what is in effect a seasonal adjustment. I say crude because it makes it very hard to spot turning points in the data.

Wow, that was boring. On to the exciting data!

The big gains in September were in Retail Trade, which added 4,300 jobs; Administrative and Waste Services, which added 5,100 jobs; and Education Services, which added 8,200 jobs. Here is a breakdown of each of those numbers:

• On average in the previous 12 months, Retail Trade lost about 16 jobs a month. Examining not seasonally adjusted data for Retail Trade over the last 10 years, this sector has shed an average of just under 6,000 jobs from August to September. This September Retail Trade shed just 3,700 jobs. Seeing fewer layoffs than normal in September, the seasonal adjustment process expanded employment in Retail Trade.

• Administrative and Waste Services has a sub-sector called Employment Services that had a very good month. Employment Services mostly consists of temporary help agencies. Again, looking at not seasonally adjusted data back to 2002, we know that this sector from August to September typically adds just over 2,000 jobs. This September, however, Employment Services added 9,100 jobs on a not seasonally adjusted basis; thus, the large seasonally adjusted gain in employment in the sector.

• Educational Services as reported in the monthly jobs report includes only private sector entities such as private elementary and secondary schools, private universities and other private educational providers. Public education is reported under Government. Looking at the sub-sectors within Educational Services, Colleges, Universities, and Professional Schools since 2002 have added on average 23,000 jobs from August to September. This year they added almost 32,000 jobs. That's about 9,000 more jobs than typical.

So what to make of these trends?

It would be great if the Pennsylvania labor market kept up a pace of job growth of 17,000 jobs a month. To get back to full employment in three years, we need about 11,000 new jobs a month. It is unlikely that the labor market is going to keep growing this fast; the current pace of job growth, including both the revised August number and September's Tsunami, is 1,900 jobs a month.

In another blog post, I will return with analysis of some longer-term trends in employment in Pennsylvania. Let me close this post with some graphs as well as some questions that I do not have the answer to:

• Did Retail Trade layoffs come in lower than expected because employers are gearing up for a strong holiday hiring season? 
• What would drive the spike in hiring of temporary employees in September, and why has temporary hiring slowed down in the last 12 months?
• Did private colleges and universities put more students on the payroll than normal this year?