Economy & Business Environment Blog

Gad Levanon

Gad Levanon is Managing Director, Economic Outlook & Labor Markets at The Conference Board, where he also leads the labor markets program. Levanon created The Conference Board Employment Trends Index™, a widely used measure that fills the need for a leading index of employment.
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Posts by Gad Levanon

Growth in American manufacturing jobs? It’s happening in Michigan

May 12, 2017 | No Comments »
More on: Economic Indicators & Forecasting, Labor Markets, Looming labor shortages, Procurement & Supply Chain Strategy, Productivity & competitiveness, Sustainability, innovation & growth

by Gad Levanon and Diane Lim

Today’s jobs report reinforces the slow yet steady recovery of the auto industry. Since 2009 when auto manufacturing jobs bottomed out at just over 600,000 jobs, the sector has seen steady improvement: back above 900,000 jobs for the past two years and at 946,300 in April, according to today’s report.

Still, U.S. manufacturing and auto manufacturing jobs have yet to reach their pre-recession levels. And as we’ve said in our Hill column before, the recession by no means can serve as the scapegoat for the challenges facing the manufacturing industry.

But for a happy story about manufacturing, look no further than Michigan.

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Our unemployment rate is great, so why aren’t wages rising faster?

May 12, 2017 | No Comments »
More on: Growth, Productivity & Competitiveness, Labor Markets, Looming labor shortages, Productivity & competitiveness, Sustainability, innovation & growth

Authored by Gad Levanon and Brian Schaitkin.

Five years ago, an unemployment rate of 4.4 percent — which the latest jobs report shows — would have been unthinkable. The impact of the tighter labor market is noticeable in larger recruiting difficulties and higher quit rates, but so far low unemployment has not been sufficient to deliver the types of wage increases workers crave. Nominal wage growth has remained stubbornly below 3 percent. Adjusting for inflation, real wage growth remains below 1 percent. In fact, the last time workers truly had leverage to enjoy an extended period of real wage growth was during the halcyon days of the dot-com boom.

So what factors are preventing workers from securing wages in an environment that should be favorable to them?

First, worker sentiment indicators suggest that the labor market is as tight as it was at the end of the last expansion, but not tight enough to force more robust wage growth just yet. The “labor market differential” is a valuable measure derived from two questions in the Conference Board’s Consumer Confidence Survey. It is calculated as the difference between the share of respondents who believe jobs are plentiful and those who believe jobs are hard to get. This measure currently sits at a slightly higher level than right before the Great Recession, though still far below record high levels reached in 2000. Should the measure improve further, payrolls may well rise.

Moreover, measures of productivity and inflation also serve as key drivers of wage growth. Since 2005, average productivity growth (the amount produced by a worker per hour) has been considerably slower than during the period between 1997 to 2004. Slower productivity growth means firms are receiving lower returns per worker and therefore are unwilling to pay higher wages. A low inflation environment in recent years has also reduced the need of employers to compensate for increases in the cost of living, which contributed to lower wage growth.

The structure of the labor market has changed dramatically since 2000. More Americans work in these service sector jobs, which also lend themselves to more flexibility for employers in determining business location and tapping into many different pools of workers. With lower union membership rates, service-providing industries can utilize alternative work arrangements more. For example, the rise of contract labor has allowed firms to hire janitors, security guards, and other workers in non-core functions at lower costs. Also, the changing age composition of the labor force has held down wage gains as a large number of experienced and well-paid older workers are retiring.

Finally, it is important to remember that wage growth lags behind a tighter labor market, so the best of times for workers may well lie ahead. Unemployment fell below 5 percent in the middle of 2005, but it was only in the middle of 2007 that real wage growth moved above 1.0 percent. By this standard, faster wage growth could arrive at the end of this year or at the beginning of 2018.

The Atlanta Federal Reserve tracks wages of those who have remained employed for the past 12 months and that measure shows that wages started growing at a more rapid clip almost two years ago. Some of the workers rejoining the ranks of the employed now have spent years away from the labor market and therefore command lower wages, bringing down the overall average. With fewer workers left on the sideline though, employers will have increased difficulty filling vacancies. A seller’s market could well be on the horizon for workers soon, and with that a long sought after raise.

This piece originally appeared in “The Hill.”

America’s Foodies are Powering the Economy with Manufacturing Jobs

May 3, 2017 | No Comments »
More on: Labor Markets, Marketing & Brand Strategy, Measuring social impact, Procurement & Supply Chain Strategy

Authored by Gad Levanon and Diane Lim.

In a column last month, one of us detailed the long-term decline in manufacturing jobs. But it turns out that the somewhat gloomy story by no means pervades the whole manufacturing sector. On the upside, in April’s jobs report, it serves as a reminder of America’s impressive ability to make and manufacture food.

While overall manufacturing employment has been on a fairly constant upswing since 2010, it still remains more than 1.5 million jobs below its pre-recession level from 10 years ago. Although food manufacturing jobs, now at 1.6 million, comprise just 13 percent of total manufacturing jobs, food manufacturing has contributed more than all of the net new manufacturing jobs over the past year, as the rest of manufacturing has lost 3,000 jobs. And unlike the rest of manufacturing which has failed to get back to pre-recession employment levels, there are now over 100,000 more food manufacturing jobs than before the recession.

So why has food employment done so well?

One reason: despite food manufacturing being a “goods-producing” industry, the American consumer increasingly views food as more of an “experience” and less of just a “thing.” The growing preference for “food experiences” means higher demand for food and, ultimately, more jobs producing food.  Start with the simple fact that food consumed away at restaurants now surpasses food consumed at home. Consider all the labor that goes into satisfying, for example, the young urban couple who now wants a distinctive presentation of the food — and to boot, a backstory of the ingredients in the food. Look no further than the rise of the “foodie” — a term that would leave most scratching their heads even a decade ago.

Second, demand for food is by necessity a constant, no matter our economic circumstances. It is not adversely affected by an economic downturn in the way purchases of durable or luxury goods — houses, cars, household appliances, even clothing — are. We have to eat, no matter where we eat, at home or at a restaurant. When incomes decline, we might tighten our food budgets by eating out less and substituting store-branded grocery items for national ones, but we cannot eliminate our food purchases.

Third, in contrast to some other things our country makes, the U.S. still has a “comparative advantage” in producing food. In the simplest of terms, America does food well. Among the reasons, the food “supply chain” journey still remains largely within our borders. This matters due to the perishable nature of food. Overall, the country has the benefit of close proximity between production, at food manufacturing facilities, and consumption, at grocery stores and restaurants.

And that supply-chain journey that food takes from farm to table has a dizzying array of steps in the process. As a Committee for Economic Development of The Conference Board report points out, the process involves and employs millions of people in a huge diversity of roles. By no means is it just workers in the food manufacturing industry, but people who work on the service side of food. For example, employment at food and beverage stores now far exceeds pre-recession levels, up more than 250,000 jobs over the past 10 years.

Apparently, we Americans especially enjoy our carbs and sweets, as employment in retail bakeries (think gourmet cupcakes) has increased by more than 25 percent in 10 years. And our growing preference to eat out shows in the employment numbers for restaurants and bars, now far above pre-recession levels by about 2 million jobs.

Even as our economy shifts from making things to providing experiences, the American “foodie” turns out to be a manufacturing and job creating powerhouse. So with today being Friday, let’s dine and drink to that!

3 Things the Jobs Report Doesn’t Tell Us About the US Economy

March 30, 2017 | No Comments »
More on: Economic Indicators & Forecasting, Labor Markets, Looming labor shortages, Sustainability, innovation & growth

This blog is authored by Gad Levanon and Diane Lim.

Like every U.S. jobs report, this morning’s report gave an incomplete snapshot of the labor market’s current condition and trajectory.

Make no mistake-the Bureau of Labor Statistics (BLS) report remains the gold standard in terms of being the highest quality, most reliable labor market data out there.

But here are three reasons why this monthly report fails to provide a high-resolution view of the labor market-a view that we economists need to better understand what’s going on.

It doesn’t fully capture unconventional jobs like Uber.

The survey questions fail to fully capture the rising trend of non-standard job arrangements. For example, jobs associated with mobile platforms, like Uber, along with the broader population of the self-employed, including temps and contractors.

These types of work arrangements are not always viewed or counted as employment by either the “worker” or “business” surveys that feed into the BLS report. From the worker’s perspective, a part-time (and often sporadic) activity, even if paid, can be considered more of a hobby or side gig than a “job.”

From the business’s perspective, hiring a “consultant” for specific services is not the same as bringing more employees onto the company payroll. So when the surveys ask workers about their employment situation and ask businesses to “count jobs,” these non-standard work arrangements typically fall under the survey’s radar, and thus don’t get captured in the employment report.

It describes the employment conditions of groups, not individuals.

The report aggregates businesses into industry categories and workers into large demographic categories. Any particular group might show close to zero change in the number of jobs or employment status. For example, in today’s jobs report the manufacturing industry shows a gain of only around 5,000 jobs out of 12.3 million, and the demographic categories of adult men, whites, and those with college degrees each show no change in unemployment rates.

Yet if we could look more closely across different parts of the country, different companies within an industry, and even different occupations within a company, we would likely see plenty of job churning. (In the manufacturing industry, for example, around 275,000 jobs are gained or lost in any month.) And we would likely see changes in the composition of jobs across the narrower categories within the broader ones. Those more micro-level movements would give us much better clues about where the overall labor market and economy as a whole is headed.

It says “a job is a job” rather than identifying “whose” job it is.

Finally, the two separate surveys that feed into the employment report make it difficult to figure out how employment arrangements are distributed across real people. The establishment survey counts jobs as reported by businesses, while the household survey measures employment and unemployment as reported by individuals.

One person can hold multiple jobs, but a job is a job in the establishment survey. Each job in the establishment job count cannot be linked to specific people in the employment status household survey. A person employed in three part-time jobs can be counted as one “full-time” employed person in the household survey (holding multiple jobs), and three jobs in the establishment survey. So more jobs counted from the business side does not always mean “more employment” from the household (real people) perspective.

The monthly employment report falls short in providing the microscopic, high-resolution view of the labor market that economists yearn for. That’s why BLS does so much more, and collects so much more data, than what goes into the monthly employment report-a prime example being their survey of contingent and alternative employment arrangements. They last fielded this survey a dozen years ago in 2005, but have scheduled the next one to be fielded this spring, with the results set to come out in late 2017 or early 2018.

These kinds of supplemental surveys that collect more granular, micro-level information on employment status are essential for economists to have a better understanding of today’s uncertain and ever-changing economic conditions.

This piece originally appeared in “The Hill.”

Why the Decline in Earnings Isn’t That Bad

October 24, 2016 | No Comments »
More on: Economic Indicators & Forecasting

Even as the US economy continues to expand, largely on the back of solid household spending, the corporate profits environment is turning south after several years of exceptional performance (chart 1). This profits recession has led many to believe that an economic recession may be around the corner. However, while a return to substantial corporate profits growth is unlikely in the foreseeable future, we don’t believe this decline signals an imminent recession for the economy as a whole.

Chart 1


Source: Bureau of Economic Analysis. Shaded areas are periods of recessions.

But let’s take a step back first. How did corporate profitability perform so strongly in the first five years after the financial crisis, despite the mediocre growth recovery? Part of the answer lies in a period of remarkable cost-cutting that began in the late 1990s and continued through the Great Recession, which saw U.S. workers replaced with technology (productivity growth) or less expensive labor located in emerging countries (offshoring). Likewise, there is growing evidence that increased industry concentration in many U.S. sectors drove rising profitability over the past decade.

Two additional factors contributed to the high profitability rates of US corporations during the post-crisis years. First, as a result of high unemployment, wage growth was historically low between 2009 and 2015. Second, interest rates have also remained historically low ever since the Great Recession, thus reducing the cost of financing. Corporate profits soared from the confluence of all these forces.

But periods of very high profitability tend not to last very long, and it seems that U.S. corporate profits peaked in the second half of 2014, and are now on a downward trend. Some of the trends that contributed to high profits earlier have reversed themselves in recent years. Offshoring activity has declined substantially from the previous decade, productivity growth has been anemic in the last six years, and tighter labor markets are beginning to accelerate wages. On top of that, the appreciation of the U.S. dollar lowers profits generated in other countries.

The recent decline in profits has raised the alarm about the possibility of a recession. In almost every expansion since 1959, a recession followed less than two years after a peak in corporate profits (chart 2). We are now about two years removed from the 2014 peak. Is a recession therefore imminent?

Chart 2


Source: Bureau of Economic Analysis. Shaded areas are periods of recessions.

As the current economic growth trend is only about 1.5 percent and corporate profits are declining, the probability of a recession is indeed higher than in most periods of expansion. Investors and executives do not like to see profits declining, and we could be approaching a watershed moment that decisively shifts companies into a cost-cutting mindset, followed by drop-offs in spending and investment. And indeed, business investment fell by one percent over the last four quarters—the first decline over four quarters in a non-recessionary period in 30 years. And remember, it takes much less to move the current growth rate of 1.5 percent into negative territory than dropping from three percent—the average postwar growth rate during an economic expansion—to zero.

But all that said, The Conference Board Leading Economic Index® (LEI) for the U.S. has yet to show any signs of looming recession. The household and government sectors seem able and willing to continue to spend, and thus offset the lower spending of the business sector. In addition, partly as a result of the very mild expansion, the US economy has yet to develop the sort of obvious bubbles or over-spending and -leveraging that triggered previous recessions.

If a recession does occur, corporate profits will plummet, as they always do when demand contracts. However, even if the US economy manages to avoid a recession in the coming years, the outlook for corporate profits remains negative. Economic growth is likely to remain slow and the labor market is only getting tighter. Having fallen back down to Earth from the antigravity era of 2011–14, the sustained headwinds now squeezing corporate profits should incentivize business leaders to find new ways to increase the productivity of their existing workers. The urgent question is how—and the answers may determine the shape of U.S. economic performance for years to come.



Fewer Shrinking Industries – the end of disruption?

July 15, 2016 | No Comments »
More on: Economic Indicators & Forecasting

This post was written by Gad Levanon, Chief Economist, North America and Frank Steemers, Research Assistant.

One of the surprising features of the US economy in recent years has been rapid employment growth despite only modest economic growth. While GDP in the current economic expansion has been growing much more slowly than in previous expansions, employment growth has been quite robust (chart one).

Chart one

July 15 Chart Blog


Much has been written about this topic in recent years. In this blog we are looking at rapid employment growth by considering the share of shrinking industries in the economy. When a small share of industries are shrinking, overall employment growth tends to be higher. This blog examines the share of industries that have been shrinking in each of the past 25 years. We look at all 4 digit NAICS Code industries (there are about 240 of them), and for each year we plotted below the share of the industries that experienced an employment decline. We divided the industries into manufacturing and non-manufacturing.

Chart two

Gad Blog Jul 15 chart 2


In Chart Two, it is important to look beyond the spikes around recession years. There is obviously a jump in the number of shrinking industries in recession years. It may be more useful to compare numbers over time in non-recessionary years. Let’s start with manufacturing industries. Recently, the number of manufacturing industries with declines in employment in recent years has been the lowest since at least the early 1990’s.[1] In 2015, only 21% of manufacturing industries experienced a decline in employment. Between 1991 and 2010 that share never dropped below 32%, and between 1999 and 2010 it never dropped below 55%.


Why have so few manufacturing industries experienced a decline in employment in recent years? It has certainly not been due to strong demand. As mentioned above, economic growth has been unusually weak in the current expansion. The answer is probably a combination of a slowdown in productivity growth, lower offshoring activity and slower import penetration from foreign competitors.

When employers in a certain industry are able to maintain production with fewer workers due to technological improvements or other reasons, the number of workers in that industry is more likely to shrink. At The Conference Board we have been writing a lot about the slowdown in productivity growth. See here and here for example. Many others have been writing about this as well. One reason for this lack of productivity growth is a lack of innovation and – what economies like to call – creative destruction.

Similarly, when employers shift production to other countries, the number of domestic workers shrinks.  There are no official measures of the number of jobs lost to offshoring. One related data source that existed until 2012 was the Mass Layoff Statistics from the Bureau of Labor Statistics. One of the measures from that survey was mass layoffs due to movement of work to overseas locations. In 2012 that number was a fraction of the 2004 level (Chart Three), suggesting that offshoring activity slowed down significantly in the past decade [2].

Chart Three

Gad Blog Jul 15 Chart 3


In the non-manufacturing sectors there also are fewer shrinking industries now compared with 2001-2010 period, but the change is much less dramatic than in manufacturing.

One possible conclusion is that between the late 1990s and the start of the Great Recession the combination of rapid technological change, offshoring and import penetration caused a major disruption to US manufacturing, and a smaller one to non-manufacturing, but that this disruption is largely over by now. That is one of the reasons for the robust employment growth in this expansion despite modest economic growth.

Will we see more shrinking industries in the future? It is hard to predict future productivity growth and offshoring activity, but the tightening of the labor market is a factor that is likely to increase the number of shrinking industries. Faster labor cost growth and declining corporate profits in the US are likely to push more businesses to further automation and offshoring, though the scope for more offshoring appears much more limited than 10-15 years ago.

In case you are wondering which industries are still shrinking in recent years, the list is below. The majority of these industries have been constantly shrinking for one or two decades.

Here are the industries that were mostly shrinking in 2011-2015:

Electric power generation


Textile mills


Paper and paper products

Printing and related support activities

Computer storage devices, terminals, and other peripheral equipment

Communications equipment

Electricity and signal testing instruments

Wholesale and retail

Office equipment

Paper and paper products

Book stores and news dealers


Office supplies, stationery, and gift stores


Publishing industries, except Internet

Video tape and disc rental

U.S. Postal Service


[1] It was probably lower than in the 1980s as well. The shift in industry classification makes comparisons to the 1980’s problematic, but from looking at the data it seems that the number of shrinking industries throughout the 1980’s was higher than in recent years.

[2] According to a TD Economics report from 2012, the overall magnitude of job losses due to offshoring was large: “Of the 5.3 million manufacturing jobs lost since the turn of the century, we estimate that roughly 1 million were from the direct effects of offshoring to low-cost China.”


Don’t be surprised if inflationary pressures build up steam as the economy gets increasingly constrained by the supply side

April 15, 2016 | No Comments »
More on: Economic Indicators & Forecasting, Procurement & Supply Chain Strategy

In the weeks after the Fed raised interest rates in December, global financial markets trembled and inflation expectations, as measured by the bond market, declined significantly. On February 9, market-based inflation expectation over the next five years fell to just 0.93 percent, the lowest level since the Great Recession. This drop in inflation expectations fueled calls for halting the rate hikes, with a growing cohort of economists and market participants questioning the wisdom of raising rates in the first place.

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Should we finally start worrying about inflation?

December 17, 2015 | No Comments »
More on: Economic Indicators & Forecasting

With the Fed raising rates this week, the monetary policy debate on the next step will commence, focusing on whether or not the Fed made a mistake in raising rates too soon, and what it should do going forward.

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Does productivity mismeasurement matter?

August 17, 2015 | No Comments »
More on: Economic Indicators & Forecasting, Labor Markets, Looming labor shortages, Measuring social impact, Productivity & competitiveness, Sustainability, innovation & growth

In recent years, official estimates of labor productivity growth have shown a significant slowdown. But many argue that the government has failed to correctly estimate productivity. This argument was made recently in a Wall Street Journal article featuring Hal Varian, Chief Economist of Google. The piece prompted an elaborate discussion in the blogosphere.[1]

Mismeasurement of productivity likely results from mismeasurement in any of the three components used to construct productivity measures:

  1. The number of actual dollars being exchanged for production
  2. The real value of production, which adjusts the dollars paid for production for price changes and quality improvements
  3. Labor input or number of hours worked, which is used to calculate real value of production per worker or hours of work

Most of the mismeasurement discussion has to do with the second point, the real value of production, and rightly so. Measurement issues with the actual number of dollars being exchanged for production or with labor input do not explain the productivity slowdown.

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Is Wage Growth Accelerating? All signs point to Yes!

July 24, 2015 | No Comments »
More on: Economic Indicators & Forecasting

One big question regarding the US economy is whether wage growth is accelerating. You might think that this is a pretty straightforward question to answer, but it’s not. There are many measures of wage growth, and they don’t all point in the same direction. For example, we can compare the year-over-year wage growth in recent years (Chart 1)according to four different measures, three from the US Bureau of Labor Statistics: the Employment Cost Index (wages and salaries), average hourly earnings (Establishment Survey), median weekly earnings (Current Population Survey), and the new Atlanta Fed Wage Growth Tracker. Some of these measures show a significant pickup, but some show no acceleration at all. What should we make of this?

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