Beyond logistics, the U.S. jobs market remained robust through mid-April: Private payrolls increased by 428,000 jobs (slightly beating the consensus forecast of 400,000 job gains) and the unemployment rate held steady at 3.6 percent. The participation rate continues to stagnate well below pre-pandemic norms – despite suspicions a year ago that labor force participation was being artificially depressed by temporary fiscal largesse. But job cuts have also increased in recent weeks. Outplacement firm Challenger, Gray and Christmas, Inc. reported yesterday that job cuts increased by 14 percent in April and are now higher than a year ago. For the moment, it appears that most of these workers are finding new jobs reasonably quickly (if they so desire).

The freight labor market tends to lag the freight market, and it would be unwise to overlook signals elsewhere of widening cracks in the foundation of the freight economy. Amid a suddenly softer spot market for truck transportation services, there is also a growing chorus of reports of overcapacity in the warehousing sector (see here and here). For much of the past two years, indeed much of the past decade, the booming warehousing sector has provided a critical source of demand for workers who might have otherwise sought jobs in heavy trucking; the moment that trend shifts could see a sea change in worker availability and wage growth for truck transportation workers.

It’s a common refrain that freight leads the economy, though the empirical evidence of this relationship is – at best – mixed. Freight downturns occur about twice as often as broader macroeconomic downturns, so the correlation is noisy (and most certainly not causal). Still, the next few months will see an unprecedented pivot in monetary policy; the only historical guides we have are from a far different era.

Economic conditions as the United States emerged from the depths of the Covid-19 pandemic proved ripe for workers to gain labor market leverage, which has helped push consumer prices and wage gains to generational highs. Increasingly, though, it appears as if the tides could again be turning. Don’t panic… yet.

The post April Jobs Report appeared first on Convoy.

In September 2007, newly former Federal Reserve Board Chair Alan Greenspan published a memoir reflecting on his two decades at the helm of the world’s largest central bank. His transformative tenure, lasting from 1987 to 2006, bore witness to the aftershocks of the sudden end of the Cold War and the euphoria of economic globalization’s raucous adolescence. 

Greenspan titled his book “The Age of Turbulence,” a choice that, in retrospect, seems quaint: Almost a year later, turbulence would return to the global economy with the financial market crash of September 2008. The decade and a half since has seen the global economy roiled by a sovereign debt crisis, a U.S. domestic oil boom and bust, a trans-Pacific trade war, a global pandemic, worldwide semiconductor shortages, and, most recently, the first major European land conflict since the Second World War. 

In retrospect, it can feel like Greenspan’s “Age of Turbulence” was just the opening act. The world economy is in constant flux; periods of stability are rare and relative. 

Most logistics professionals are skilled at navigating their business’ transportation needs through the seemingly endless parade of economic and geopolitical shocks, but familiarity does not necessarily make the turbulence any less disruptive. 

Economists typically distinguish between shocks that are the result of risk and shocks that are the result of uncertainty. Risk events have a stable, known probability distribution — the odds of occurring at a given point in time do not change dramatically over the years. They can be managed. Uncertain events have an unknown or unstable probability distribution. There is little we can do about uncertainty. (This distinction was originally popularized by Frank Knight, a well-known economist at the University of Chicago.)

Uncertainty is sometimes equated with black swan events — outcomes that weren’t even on the radar. That’s an extreme case. More often, uncertainty is less exotic: For example, events with a probability distribution that changes over time (e.g., the risk of a market correction) or events where there is not enough data to identify a meaningful probability distribution (e.g., the risk of very high inflation). It’s not that some subjective probability does not exist, it’s that such events are so rare or so volatile that we have no concrete sense of the odds.

Every age is its own age of turbulence. Increasingly extended and complex supply chains amplify the reach of small vulnerabilities. Navigating inevitable economic shocks requires the combination of active management of risk events with some degree of acceptance of uncertainty. 

The promise of technology and data transparency is that gradually, over time, market shocks move from the uncertainty column into the risk column — moving some of the sources of volatility in freight and logistics from the realm of unknown and unstable probability distributions into the realm of known and stable.

It is not an unrealistic dream. 

Among the great economic policy achievements of the past 30 years has been the taming of the disruptive booms and busts that plagued the U.S. economy for much of the 20th century, a phenomenon known as the Great Moderation. While the boom-and-bust cycle has not been entirely defeated, cyclical fluctuations in the U.S. economy have become much less frequent. This remarkable success was the result of explicit decisions by policymakers to allow the U.S. economy a greater degree of market-based flexibility: accept smaller and more frequent micro-adjustment but fewer seismic mega-shocks.

Shifting mindsets is never easy, but amid trucking’s most recent age of turbulence, we all can aspire to our own Great Moderation in the years ahead.

This story originally appeared in Convoy’s “The Future of Freight,” featuring 40 thoughtfully curated pages on supply chain disruption, freight procurement, market volatility, and more.

The post Risk and Uncertainty in Trucking’s ‘Age of Turbulence’ appeared first on Convoy.

Nonfarm payrolls increased by 431,000 in March according to data published today by the Bureau of Labor Statistics (BLS), and the unemployment rate fell to 3.6 percent – a tenth of a percentage point shy of its pre-pandemic low and two-tenths above the boomtime unemployment lows of the late-1960s. It is a remarkable turnaround since the Covid-19 pandemic first rattled the global economy exactly two years ago, leaving record numbers of Americans out of work.

Key logistics sectors were mixed – with trucking firms shedding 4,900 workers (though trucking payrolls for the prior two months were revised upward by a combined 8,600 jobs), parcel delivery payrolls increasing by 6,700, and warehousing and storage firms adding 4,300 to their headcounts (all seasonally adjusted). Employment in these industries is now, respectively, 2.3 percent, 28.3 percent, and 33.8 percent above where it stood on the eve of the pandemic. For truck transportation firms, March 2022 marks the first month-over-month decline in payrolls since April 2020 and — that chaotic month aside — the largest decline since September 2019 when the freight market was in the middle of a deep slump.

But according to a growing chorus of market watchers, the freight bender is coming to a screeching stop. 

If the tentative signs of a softening freight market that emerged mid-March prove durable, it’s likely that logistics firms will pause their recent aggressive pace of hiring, pull the brake on wage offers, and retreat from worker training investments. Nominal hourly wages for non-managerial workers in the transportation industry grew 11 percent in February – setting a new all-time record going back to the early 1970s. That was probably the peak. As demand for frontline logistics workers ebbs, there will likely continue to be ample opportunities in adjacent sectors such as construction, manufacturing, and natural resource exploration/extraction. 

It’s easy to forget that just a handful of weeks ago, there was lingering chatter of trucker shortages – fears that increasingly feel overstated with the benefit of hindsight. While it is true that periodic market corrections do not erase longer-term structural labor shortages, it is equally true that periodic tight markets do not necessarily imply their existence – perhaps an important lesson of the whiplash freight market gyrations of recent months.

View our economic commentary disclaimer here.

The post April’s Fools appeared first on Convoy.

Freight and logistics firms posted a relatively strong hiring month in what is typically a seasonal low point for the industry. In years when the freight market is strong, logistics firms tend to get a head start on hiring in anticipation of late-spring volume surges; in soft-market years, February tends to be a continuation of January’s post-holiday hangover. Truck transportation firms added 5,400 workers to seasonally-adjusted payrolls, package delivery services added 9,400 workers, and warehousing firms added 10,700 workers – all toward the upper range of recent trend movements.

However, the bulk of these gains were due to downward revision to the January numbers. January employment for the trucking industry was revised downward by 5,500 workers, and December employment was revised down by 2,800; parcel delivery employment for January and December was revised down by a combined 7,500 workers.

Volatile consumer spending and factory output have muddied conventional statistical approaches to teasing out seasonal surges and dips from longer-term trends or true economic surprises. Amid what is arguably the tightest blue-collar labor market in a generation, broad swaths of the logistics industry hoarded labor and limited seasonal layoffs this winter. The not-seasonally-adjusted employment data showed that trucking and warehousing firms added headcount in February. The end result could be less seasonal hiring later this spring.(Package delivery firms continued to shed jobs in non-seasonally adjusted terms.)

After February’s revisions to the BLS benchmarks, it is crystal clear that employment in the trucking industry is now well above where it stood on the eve of the pandemic and – depending on the sub-sector – near all-time peaks reported in summer 2019. But the aggregate numbers hide important differences across occupational groups: While driver employment is back at or slightly above pre-pandemic levels, back-office employment in the trucking industry is at historic highs. As freight demand slows over the coming months, it’s likely that these back-office workers will be first to feel it.

The post Freight Hiring Resilient in February Despite Wall Street Wobbles appeared first on Convoy.

Still, the headline 467,000 increase in private payrolls was far better than the gloomy forecasts just a day or two ago suggested; December 2021’s job gains were also revised sharply upward, from the initially reported 199,000 payroll increase, to a gain of 510,000. The unemployment rate ticked 0.1 higher (effectively unchanged), and the labor force participation rate was up but remains low by historic norms.

However, the increase in payrolls appears to be mostly the result of the updated population controls. (Absent the new population controls, employment would have shown a 272,000 decline.) This will inevitably raise questions about what exactly we should take from the report: Bulls will see continued strength which would bolster the case for a decisive upward shift in interest rates, while bears will see a statistical sleight-of-hand and urge caution. 

Trucking industry payrolls increased by 7,500 workers, package delivery jobs jumped by 21,200, and warehousing jobs jumped by 13,400. (All numbers are seasonally adjusted.) These changes appear to be heavily distorted by the methodological updates, so we caution against reading too much into the sequential changes. However, the updated data show a decisive shift in a trend that has gradually been emerging for much of the past decade: For the first time since records began, there are now more warehousing jobs in the United States than trucking jobs.

Looking beyond the topline numbers and blurry month-over-month changes hints at a more worrisome trend: In response to supply chain chaos over the past two years, the bulk of the trucking industry appears to have invested most heavily in expanding manager and operations headcounts, rather than in front-line drivers or productivity-enhancing science and engineering roles.

Anyone with a pulse on the trucking industry will be skeptical of the surge in freight payrolls in January (at least on the scale that the BLS data suggest).

It’s easy to forget that the headline truck transportation numbers published by BLS aren’t just truckers; they include back office and support workers at trucking companies as well. Even as trucking firms have sought to add drivers over the past year, they have also been aggressively onboarding other types of workers too. 

According to our analysis of data from the U.S. Census Bureau’s Current Population Survey (CPS), a little over one-third of trucking company employees are not drivers. These roughly 600,000 workers are composed of business operations associates (roughly one-third of the non-driver total), management or legal workers and material moving workers (roughly one-fifth each) – with the remaining quarter mostly in maintenance/repair, sales, or finance/tech roles. 

Over the past two years, management and legal roles have been growing fastest at trucking companies – up almost 40 percent (37,000 workers) between 2019-Q4 and 2021-Q4 – and business operations roles, which were up 27 percent (46,000 workers) over that two-year period. During the same period, driver headcounts at trucking companies were up by 1 percent (14,000 workers). (We aggregated the CPS data here at the quarterly period, rather than the monthly period reported in other analyses, to ensure sufficient survey sample sizes. We also seasonally adjusted and smoothed the data using a Hodrick-Prescott Filter.)

During the decade from 2009 to 2019, there were on average 11.3 drivers for every office manager at trucking firms; in 2021, that ratio fell to 8.2 drivers per manager. Presumably, the growth in management and operational support payrolls at trucking companies reflects – at least in part – supply chain disruptions associated with the pandemic and the broad-based market failure of annual freight contracts, which leads to more back office scrambling to meet service requirements. 

With so much of the freight industry’s focus for 2022 squarely on improving driver productivity, this data suggest there is a clear opportunity for the trucking industry to address back office productivity at trucking companies as well.

View our economic commentary disclaimer here.

The post Look Beyond the January Data to Make Sense of the Surge in Trucking Payrolls appeared first on Convoy.

U.S. private-sector employers added 199,000 workers to their payrolls in December — the second consecutive month when job gains missed admittedly sky-high forecasts — but the unemployment rate fell by more than anticipated, declining to 3.9 percent from 4.2 percent in November according to data published this morning by the Bureau of Labor Statistics (BLS). November job growth was revised upward from 210,000 to 249,000 and the participation rate held stubbornly constant.

Despite disappointing job gains, December capped a remarkable year for the U.S. labor market. Total nonfarm payrolls increased by nearly six million workers (the largest annual employment gain since records began in 1940) and the unemployment rate fell by 2.8 percentage points over 2021 (in line with the largest ever year-over-year declines in the unemployment rate). But hiring constraints were clearly weighing on firms’ ability to onboard workers by year’s end.

Employment in key supply chain sectors was decidedly mixed. Truck transportation firms added 300 workers, package delivery firm employment fell by 100 workers (and saw substantial downward revisions to past months due to updated seasonal adjustment factors), and warehousing and storage firms added 5,000 workers in December (all seasonally adjusted). For the trucking industry, December was the slowest month for employment gains since May 2021. However, November trucking payrolls were revised upward; absent those revisions, December would have notched an employment increase closer to 2,000 jobs. All in all, trucking companies added about 50,000 workers to their payrolls in 2021 – in line with payroll gains reported in 2014 and 2018, both recent high points for the freight market.

Of course, the report does not reflect the effects of the late-December Omicron surge. The data reported by BLS were collected for the week of December 12th. That week, the U.S. reported about 138,000 active cases with the Omicron variant accounting for about 38 percent of infections; by early January the country was reporting upward of 500,000 cases with Omicron accounting for 95 percent. 

Hiring pipelines always slow over the holidays, but the end-of-year slowdown is likely to be particularly large this year as recruiting and onboarding team capacity is limited with staff out sick. However, if the Omicron surge peaks relatively quickly – as it has in other countries – it could have only a minor longer-term effect on the labor market. 

Either way, it seems unlikely that 2022 will be able to even approach 2021’s impressive labor market gains – if nothing else, simply because so much progress has already been made.

View our economic commentary disclaimer here.

The post December to Remember, but January to Forget appeared first on Convoy.

Three key freight sub-sectors — truck transportation, package delivery, and warehousing/storage — all added jobs on a seasonally adjusted basis heading into what is traditionally peak season for the logistics industry. Trucking firms added 5,600 workers, package delivery firms added 26,800 workers, and warehousing/storage firms added 8,800 workers. 

However, it’s likely that conventional seasonal adjustment methods are overstating the holiday-related seasonal hiring surge in these sectors as the freight industry prepares earlier and earlier for long-anticipated end-of-year freight demand resulting in flatter and fatter seasonality. Historically, November is the seasonal hiring peak for warehousing and storage, and December is the seasonal hiring peak for package delivery firms. 

Growth in owner operators in recent months has been driven by older truckers. The number of Baby Boomer (born 1946 to 1963) owner-operators declined in 2019 and 2020, in part due to early retirements during the soft freight market of that era. For a brief period during late 2020 and early 2021, the number of Millennial (born 1980 to 1995) owner-operators exceeded the number of Baby Boomers, but that trend has since reverted. Among owner-operators, Baby Boomers again are more numerous than Millennials.

Beyond the headline payroll metrics, a bright spot in the report was the unemployment rate, which fell to 4.2 percent — lower than it ever got during the three decades from February 1970 to May 1999, and lower than the peak of the labor market during the early-2000s economic expansion. The labor force participation rate edged higher to 61.8 percent, but remains much lower than pre-pandemic levels.

View our economic commentary disclaimer here.

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Non-farm payrolls increased by 531,000 jobs — better than the consensus forecast of 450,000 (as of Thursday evening). September’s initially disappointing non-farm job gains of 194,000 were revised substantially upward to 312,000, and August payrolls were also revised higher. The unemployment rate fell 0.2 percentage points to 4.6 percent and labor force participation remained stagnant. Economists will debate precisely how much labor market slack there might still remain hidden behind the headline metrics, but the fact is: The unemployment rate is now as low as it was at any point in the 27 years from 1970 to 1997.

General freight trucking firms added 7,900 jobs (seasonally adjusted) to payrolls last month — one of the best months for the past year (just shy of August’s 8,700 gain). Trucking industry employment is about 20,000 workers short of pre-pandemic highs in the BLS data; but, accounting for growth in the owner-operator (self-employed) segment — which is not included in the headline BLS numbers — industry employment is now slightly above where it stood on the eve of the pandemic. Among available drivers, capacity has clearly shifted toward the owner-operator segment.

Beyond headline employment, other metrics suggest trucking hiring constraints are past the fever pitch pace of this past summer. While many trucking firms continue to report hiring challenges, average weekly wage growth for trucking industry workers has slowed from nearly 7 percent per year in June to under 4 percent per year in August. 

Average weekly hours are up among trucking workers in general (touching their highest levels since at least the 1990s) — but most of that gain appears to be driven by specialized drivers and office/support workers. At long-haul and local trucking firms, hours are down. For carriers that focus on long-haul trucking, average weekly hours declined from 43.5 hours in April 2021 to 42.4 hours in August (provisional data). For carriers that focus on local/regional hauls, average weekly hours declined from 42.5 in May to 40.9 in the provisional August data. 

Labor market competition is not easing. Two closely related (and fast growing) industries have seen strong growth recently: Courier and messenger (parcel delivery) firms lost 4,900 jobs in October (though that appears mostly to be driven by large upward revisions to the September numbers and potentially distortions to normal seasonality) and warehousing/storage employers added 20,200 jobs (all seasonally adjusted). 

Courier and messenger jobs are up 20 percent since the start of the pandemic and warehousing/storage jobs are up 14 percent — with combined head counts up 330,000 over that period. A decade ago, there were two trucking industry workers for every one warehousing/storage industry worker; today, the ratio is nearly one-to-one. If recent trends continue, the number of warehousing/storage workers will surpass the number of trucking industry workers by the end of 2021.

Overall, today’s data paint a portrait of continued — if easing — labor constraints as the freight market moves towards year-end peak season. Over the past year, the primary constraint to trucking capacity growth has see-sawed between labor and equipment (truck and trailer) availability. With new truck and trailer production backlogs steadily lengthening, it will be increasingly logical for trucking companies to begin to push out hiring plans further and further into the future.

View our economic commentary disclaimer here.

The post Trucking is Past Peak Hiring Constraint appeared first on Convoy.

The freight market in Southern California has emerged as the cornerstone of the U.S. economy. Yet, in recent months, container ships have faced record volume and record delays at the San Pedro Bay ports. So have truck drivers. 

Just how much is the port congestion affecting truckload freight in Southern California?

The Los Angeles metro is one of Convoy’s strongest markets. So Convoy’s director of economic research, Aaron Terrazas, dug into our proprietary truckload freight data, along with publicly available transportation and economic data and research, to find out. 

The result: our Southern California Freight Insights Report.

Market-specific reports like this are possible because of the amount of freight data we’ve amassed across our digital freight network. Drivers in our network use the GPS-enabled Convoy app for carriers, which captures more than 1,000 unique data points throughout the life of a shipment. 

In Southern California, we have more than 80,000 app-connected drivers, serving more than 5,000 facilities that belong to shippers across the Fortune 500. 

Read our Southern California Freight Insights Report to learn about:

• The driver shortage in Southern California — or is there one? 
• Tender rejection rates and where they stand compared to 2020.
• Dwell times and how they’ve been impacted by Southern California market challenges. 
• Accessorial fees — which loads are incurring fees and one way to curb those costs. 
• New regulation targeting truck emissions — how it will impact which providers you work with. 
• And more. 

Download the free report today.

View our economic commentary disclaimer.

The post Ship in Southern California? Our new Freight Insights Report is for you appeared first on Convoy.

Seasonally adjusted trucking industry payrolls increased by 2,500 to 1.50 million in September, up 3.6 percent from a year earlier, according to data released today by the Bureau of Labor Statistics (BLS). Job gains for August were also revised up by 1,900 workers. It was the fourth consecutive month of payroll gains for the trucking industry, but the slowest month since May. On a non-seasonally adjusted basis, trucking industry payrolls declined by 1,600 workers — so the industry’s net gains last month are in some ways a statistical illusion. They are now 1.3 percent below where they stood in January 2020, just before the Covid-19 pandemic, and in line with employment levels in summer 2018 during the last freight market peak. (The timing of the data collection from Sept. 12th through Sept. 18th means that Hurricane Ida, which disrupted supply chains across the eastern seaboard early in the month, likely had little to no distortionary effect on the results.)

The BLS payroll data do not include the important owner-operator (self-employed) segment of truckers and, as we’ve previously noted, may actually undercount employment during periods of elevated labor market churn or when employment growth is being driven by newly incorporated firms. Data from a separate Census Bureau survey — the monthly Current Population Survey — suggest that trucking industry employment for company drivers, office/support workers at trucking firms, and owner-operators is now at or above pre-pandemic levels.

Forward-Looking Firms Hire for the Future, Not Just Today

Labor shortages have always been somewhat of a rorschach test for the priorities of the perceptor: Those seeking to hire see shortages around every corner and those seeking work inevitably see sufficient available labor for the right (usually higher) wage. Whatever one believes about the depth and longevity of the trucking industry’s recent hiring woes, it’s clear that the worst hiring constraints are past. It’s plausible that structural labor shortages may loom on the far horizon as a generation of older truckers ages toward retirement, but the most comprehensive views of trucker employment suggests that the number of active drivers is now near historic highs. While that employment level may not be sufficient to service the current extraordinary level of demand, it’s unlikely that demand will persist at current levels in the coming years — meaning that it’s entirely rational for trucking firms to hire to a level in line with their expectations of long-term business needs, not just today’s. 

Package Delivery Firm Hiring Increasingly Skewed by Gig Business Models

Employment at package delivery firms also increased (by 12,500 workers to 1.05 million seasonally adjusted) in September as the sector got an early start on holiday shopping prep. However, the share of package delivery drivers who are self-employed surged earlier this year and now stands at 5x its average for the past decade (around 20 percent as of August 2021, up from an average of 4 percent over the prior decade). As the last-mile/package delivery sector pivots more and more toward a gig economy model of employment, the BLS data will become less and less useful for assessing shifts in the industry’s underlying capacity. 

View our economic commentary disclaimer here.

The post Trucking Hiring Slows, Package Delivery Jobs Surge as Economy Approaches Full Employment appeared first on Convoy.

In a recent Convoy survey of 165 small and medium-sized trucking companies, we found that:

• Half (50%) of respondents generally try to avoid areas directly affected by wildfire activity;
• Upward of 40 percent try to avoid areas under winter watch/warning and areas under flood watch/warning; 
• About one-third of trucking companies try to avoid hauling into areas experiencing hurricane activity; and 
• About one-fifth try to avoid areas experiencing extreme heat.

Of course, “generally try to avoid” does not necessarily mean that they do so under absolutely no circumstances, but does provide an approximate indication of the magnitude of truckers’ perceived risk for various categories of natural disasters. 

In an especially fragile and volatile freight market, such as the present, these ostensibly localized disruptions have the potential to reverberate throughout the country. Historically, truck costs have surged anywhere from 5% to 50% inbound to markets that are experiencing (or are expected to experience) major natural disasters — with substantial variation depending on the type, severity and timing of the weather event.

The market response is the result of two competing forces.

Demand typically surges during the days immediately leading up to anticipated weather events — for instance, hurricanes or winter storms which are usually predicted several days in advance — or during them for slower-moving phenomena such as wildfires as residents prepare (e.g., stock essentials, protect their homes). In the aftermath of particularly destructive natural disasters, inbound truckload demand also tends to remain elevated for several weeks (sometimes several months) as local economies recover and rebuild. 

But demand changes are not the only shock to the freight system, supply also contracts during the more intense phases of natural disasters. Some individual truckers and trucking companies are, quite understandably, reluctant to put their lives and livelihoods at risk by hauling freight into potentially dangerous areas. (Of course, there are always a handful of risk-forward individuals who relish such opportunities.) 

View our economic commentary disclaimer here.

The post Dodging Disasters appeared first on Convoy.

Trucking firms added 5,400 workers to their payrolls in August (seasonally adjusted) according to the BLS data, building upon July’s 4,800 job gain and June’s 6,300 job gains after stagnating head counts for much of the first half of 2021. Though hiring has been strong through the summer, trucking industry employment is still down 1.6 percent relative to January 2020, before the start of the pandemic. Not-seasonally adjusted trucking payrolls are now 1.5 percent above pre-pandemic levels. Courier and messenger services (known as “last-mile delivery” in the freight industry) added a seasonally adjusted 20,000 workers — though this likely reflected earlier than normal hiring for what is anticipated to be a busy online holiday shopping season.

For an industry that has faced record demand over the past year and that has been aggressively increasing wages, head counts have been stubbornly slow to rebound in the BLS data despite recent signs of progress.

There are many familiar explanations for this conundrum — most convincingly, robust competition for workers from other industries and regulatory/educational barriers to entry. These challenges are very real and have been extensively documented. But it’s also possible that the data could simply be painting an incomplete picture of the trucking labor market. There is some emerging evidence to support this idea too.

As we have noted previously, the monthly BLS employment report is composed of two data sets: A survey of employers commonly known as the “Establishment Survey”, and a general population survey known as the “Household Survey”.

The Establishment Survey is generally viewed as the more authoritative pulse on the labor market, but for assessing the state of the trucking industry, it is particularly problematic. It excludes important trucker subgroups such as self-employed Owner Operators and many private fleet drivers (i.e., truckers who work for companies whose core business is not trucking or transportation) and it includes back office and support workers at trucking companies. The Household Survey data tends to be more volatile since it is based on a relatively small population sample, but allows us to more narrowly analyze workers who spend their day driving a truck.

After controlling for these conceptual differences and seasonally adjusting, the Establishment Survey data show head counts at trucking firms are still below pre-pandemic levels, while the Household Survey data suggest that trucking industry employment has fully recovered and is now essentially on par with where it was in January 2020. This is true for self-employed Owner Operators, company drivers, and for back office/support workers at trucking companies. 

What explains the discrepancy? Most likely it has to do with technical differences in how the two surveys are sampled, and how each defines “employment”.

First, the Establishment Survey assesses changes in employment at existing firms. The sample frame of companies surveyed is updated once per year, which means that new firms are underrepresented in the survey. Census Bureau research has documented how the Establishment Survey can undercount payroll growth when that growth is dominated by newly incorporated firms.

I suspect that this is the single most important reason for the trucking industry employment gap between the Establishment and Household Surveys. Data from the Federal Motor Carrier Safety Administration (FMCSA), which requires that trucking companies operating commercial vehicles across state lines register, confirm growth in the number of new trucking companies in recent months.

Second, the Establishment Survey counts “jobs” while the Household Survey counts “workers”; individuals with multiple jobs are counted multiple times and individuals between jobs (e.g., who have left a prior job and have their next job lined up) are excluded from the Establishment Survey. In a period of elevated labor market churn, multiple job holding declines and employment gaps increase — both of which should skew the Establishment Survey numbers lower.

All this is to say, in volatile economic periods like the present, the Household Survey probably provides a more complete and timely window into the state of the trucking labor market (despite the fact that Household Survey data are released several weeks after the Establishment Survey data). These technical details are deep in the data weeds, but can have conclusion-shifting consequences for our read on the state of the trucking labor market. 

View our economic commentary disclaimer here.

The post Data Deep Dive: Trucking Employment is Probably Back at Pre-Crisis Levels appeared first on Convoy.

July marks the second consecutive month of strong headcount gains, perhaps signaling that recent hiring constraints are starting to ease — though July’s increase was half the pace from June suggesting that we’re not entirely out of the woods yet. Average wages in the transportation and warehousing industry have been growing at an accelerating pace.

It’s important to note that this metric on average wages can be easily misinterpreted: Strong wage gains with lackluster headcount gains means that trucking firms are bidding against each other for the same workers or are handing out raises as a proactive retention strategy. Slower growth in average hourly earnings combined with payroll growth might actually be a good sign for the trucking industry: It would indicate an influx of less experienced workers to the labor force.

Regardless, wage gains are not keeping pace with inflation: Consumer prices were up 5.3 percent annually in June, compared to a 4.9 percent increase for production and nonsupervisory workers in the transportation and warehousing industry. While recent wage gains may feel generous to employers, they are quickly eroded by rising prices across the economy.

Periods of prolonged labor market tightness typically drive three conversations: About easing regulatory barriers to entry, about opening access to foreign workers, and finally, about investments in automation. We are seeing sparks of all three in the trucking industry today. Provisions of the bipartisan infrastructure bill under consideration in Washington, D.C. would expand a pilot program for 18-21 year old truckers and there are some reports of more trucking firms looking into various foreign worker visa programs. While there is growing attention to automated trucking as a long-term solution, there are likely to be more immediate impacts from near-term productivity enhancing investments such as Drop and Hook programs.  

Despite early-summer fears that vacation days would eat into driver availability, trucker vacation plans appear to be in line with historic norms. According to the results of a survey that Convoy conducted in July 2021, 15 percent of truckers say they plan to take more vacation time than normal between now and the end of the year — the same share who say they plan to take less vacation time than normal.

Beyond the trucking industry, the labor force participation rate remained stubbornly low, down nearly 2 percentage points from January 2020. A growing body of research suggests that expanded federal unemployment insurance benefits are, at worst, a very modest disincentive to labor force participation. Accelerated retirements and childcare responsibilities appear to be a more likely culprit: Older workers approaching or just past age 65 and parents of school-age children have seen the biggest and most enduring declines in labor force participation — respectively down 1.8 percentage points for workers age 65+ and down 1 percentage point for working parents (both relative to 2019). If the participation rate among these two groups had declined in line with others, there would be 7.5 million more workers in the labor force.

While it is plausible that working parents will return to work as schools reopen, it’s harder to imagine older adults returning to the labor force. A key question is what drove these older workers to retire during the past year? There are two possible explanations: Public health concerns associated with the pandemic, or more robust retirement savings balances due to buoyant financial markets.

At this point, most trucking firms have moved past the denial stage of hiring grief — there’s no more hoping and wishing for a magic, hidden pool of workers twiddling away on the sidelines of the labor market. They’re raising wages (though probably not by enough) and hunting for other more digestible fixes.

View our economic commentary disclaimer here.

The post Trucking Hiring Sizzled in July, Cooler Wage Growth Might be a Good Thing appeared first on Convoy.

Class 8 truck orders are one of the most widely watched data points in the trucking industry. Freight market folklore views them as a kind of canary-in-the-coalmine: When the market is hot, they foreshadow an imminent downshift.

This makes sense. After accounting for delivery lags, higher truck orders should mean that the industry is investing in new capacity — new capacity that could become overcapacity if too much of it happens or if demand unexpectedly softens. By most accounts, this is one reason for the freight industry’s notorious boom-and-bust cycle.

The reality is, truck orders reflect not only business’ plans for the future, but also the legacy of decisions made long ago. Not all truck orders are new investments; some are replacements for older, worn-out vehicles. Our analysis suggests that the trucking industry’s commercial vehicle replacement rate is likely substantially higher than conventionally assumed.

Microdata > Macrodata

Unfortunately, new trucks aren’t delivered with a sticker on the cab indicating if it’s replacing a recently retired vehicle — it’s something we have to estimate. Fortunately, this is exactly the kind of question that the data scientists and economists on Convoy’s Data Science team are trained to answer.

Most estimates of the Class 8 truck replacement rate (at least those that we have encountered in publicly available sources) rely on heuristics from industry anecdotes — for instance, a uniform seven- or eight-year replacement cycle or a long-term moving average of truck orders. From a data perspective, the reliance on high-level summary statistics is not ideal. More granular data — what statisticians call “microdata” — allows more flexible modeling and produces more reliable estimates (and is more fun to work with).

Ideally, administrative data would allow us to track individual trucks over time from their “birth” (manufacture) to their “death” (scrapping) — known as “longitudinal cohort analysis”. To our knowledge, such detailed records do not exist. A close alternative would be to observe the “age” of each active truck at a given point in time, and compare that distribution to the age distribution that would be expected given what we know about annual Class 8 truck production — a method known as “survival analysis” which is widely applied in biostatistics, ecology and demography.

We quickly realized that — by combining detailed operational and safety data that Convoy uses to assess the safety of trucking companies with publicly available vehicle information — we could create an original data set that would allow us to conduct a survival analysis, to provide a uniquely detailed answer to the longstanding question of the trucking industry’s Class 8 replacement rate.

From this insight, pulling the data together was straightforward.

• First, we took a recent snapshot of active commercial carriers registered with the Federal Motor Carrier Safety Administration (FMCSA) and state transportation departments. The vast majority of trucking companies are required to maintain federal (or sometimes state) registration, including the number of vehicles they operate. An important note is that the registrations are for trucking companies, not vehicles. 
• Next, we identified the vehicles registered to those carriers. Vehicle identifiers are available for a sample of those trucking companies that have a recent record of safety inspections. We recognize that there is the potential for sampling bias at this stage; however, as safety inspections are conducted at random, we believe the potential for bias is minimal.
• We then merged on the build year for each truck in the sample. This information is publicly available from the U.S. Department of Transportation’s National Highway Traffic Safety Administration.

From this data set, we were able to create a snapshot of the age and “birth years” of active Class 8 trucks as of March 2021. Comparing this distribution with cumulative commercial vehicle production data published by FTR, we were able to estimate a “life expectancy” range and annual replacement rate for Class 8 trucks.

Unexpected Results

Our analysis suggests that the average lifespan of a Class 8 truck is eight years, precisely in line with conventional wisdom. Importantly, however, the age distribution is not normal: The median Class 8 truck is only six years old. A handful of older trucks drive up the national average, but the “typical” truck is substantially younger.

The implied replacement rate from these results suggests that the trucking industry needs to see annualized Class 8 truck orders somewhere between 369,700 and 374,400 (midpoint of 372,200, or 31,000 per month) in order to just keep the current level of truck capacity constant. This is somewhat higher than other estimates that we’ve seen.

As of June 2021 Class 8 truck orders are running at an annual pace of 431,000 — above both replacement rate estimates, but less dramatically so in the case of ours. (Moreover, due to elevated delivery lags associated with the global semiconductor shortage, there is a longer-than-typical delay between when new truck orders are booked and when the freight market begins to see the effect of net capacity gains.)

A second implication of our analysis is that the truck production deficit is larger than other replacement rate estimates would suggest. During soft freight markets — such as the market conditions that prevailed from late 2018 through early 2020 — it is not uncommon for truck production to fall below replacement needs leading to a net decline in active vehicles. Looking purely at active truck counts may understate the true magnitude of this phenomenon since some small carriers may attempt to extend the lifespan of their vehicles during lean times with the hope of deferring large capital expenditures.

Our estimate of the industry’s truck replacement rate suggests that the capital investment deficit accumulated over the past two years totaled 39,000 trucks as of June 2021, compared to a surplus of 164,000 via more conventional estimates of the replacement rate.

Takeaways

Class 8 truck orders are an important metric to watch for everyone with a pulse on freight market developments. Understanding what portion of truck orders represents replacement — and what portion represents net growth — is critically important to accurately interpret this industry guidepost. Get the number too high and you’ll underestimate the extent of capacity growth and downside risk to the freight market; get the number too low and you set the stage for contract failure, which exacerbates market inefficiencies contributing to waste and higher prices.

In the absence of the ideal-world data we all wish we had, we must make decisions with the messy real-world data we actually have. But real-time exigencies are no excuse for napkin math. Naive estimates drive suboptimal decisions, and the predominance of suboptimal decision making creates more problems downstream. As an industry, we can and must be more rigorous.

View our economic commentary disclaimer here.

The post Survival of the Fittest: How Convoy Data Science Used Survival Analysis to Estimate the Class 8 Truck Replacement Rate appeared first on Convoy.

Private payrolls grew by 850,000 — stronger than most already-optimistic forecasts had anticipated; the unemployment rate and labor force participation rate were essentially  unchanged. Trucking industry payrolls grew by 6,400 jobs (seasonally adjusted) — the biggest monthly increase reported so far this year, but still below the pace of job gains from last fall and 36,000 jobs (2.4 percent) below pre-pandemic levels. Trucking industry payrolls for May were also revised slightly higher.

June was a solid month, but hiring probably doesn’t get any easier from here. Here are our key takeaways from this morning’s (and other recently published) trucking labor market data.

No smoking gun yet on work disincentives from federal benefits

The June payrolls data offer the first glimpse at how the labor market is performing since 25 states ended pandemic-era extended unemployment insurance benefits. We’ll have to wait about two weeks until the BLS publishes state-level industry employment data for June, but the preliminary May numbers don’t indicate any particularly pronounced easing of hiring conditions in states that had announced plans to cut benefits. We tested seasonally adjusted monthly payroll growth from April to May in states that had and had not announced benefit cuts for truck transportation, retail, construction, and food service businesses. None showed a statistically significant difference.

Blame Boomers for soft labor force participation

Another recurring question in recent months has been when — if ever — labor force participation will bounce back. After recovering from the lows touched during the chaotic first three months of the pandemic, the labor force participation rate has stagnated since last summer, hovering near levels last seen in the late 1970s prior to the entry of Baby Boomer women into the labor market.

Since last summer, labor force participation has been essentially unchanged for prime working age adults (25-54 years old), but has deteriorated markedly and is down nearly a full percentage point for older adults age 55-plus. That decline adds up to nearly half a million fewer active workers over the past year.

Trucking wage gains look modest after inflation

Freight industry headlines have hyped trucker pay gains for months now, but the data are less impressive.

The average hourly wages reported by the BLS in the Monthly Employment Situation report aren’t designed to measure longitudinal wage gains since they are vulnerable to composition shifts; but since employment has been relatively stable during the first half of 2021 in the trucking industry, this is less of a concern. By that measure, hourly wage gains for frontline transportation industry workers have barely kept pace with core inflation over the first half of 2021. By contrast, at past freight market peaks, transportation industry wages have grown anywhere from 2.5 to 3 percentage points above core inflation.

Of course, reported wages don’t include one-time bonuses — but for the moment, wage gains are probably doing more to drive churn than to attract new entrants.

Productivity to the rescue

We’ve previously noted how hiring conditions are somewhat less constrained at local trucking firms than at long-haul trucking firms. Data released in mid-June suggests that it’s not purely a supply-side phenomenon: Annual labor productivity data from the BLS showed that labor productivity improved 4.5 percent in 2020 at local carriers, but deteriorated by 0.2 percent at long-haul carriers. It’s intuitive that the carriers with larger productivity gains would be faster growing.

View our economic commentary disclaimer here.

The post The freight labor market: Hiring doesn’t get easier from here appeared first on Convoy.

The hiring woes of American employers have dominated business headlines in recent weeks but casual talk of labor shortages can sometimes feel like an ideologically-tinged Rorschach test: People see in it whatever they’re looking to find. Amid this cacophony, three data points are worth keeping in mind.

Average hours worked at trucking firms rose further in April after touching a previous all-time high in March.

The average weekly hours worked for non-supervisory employees at trucking firms touched 43.3 in April, coming off of an earlier all-time high of 43.0 hours in March — which was one hour per week longer than the 2015-2019 average of 41.9 hours. Hours worked have increased for most types of trucking firms, but the increases were particularly large for long-distance truckload and long-distance specialized (e.g., flatbed, tank) freight. (Hours worked are reported with a month lag, so today’s data included new statistics for April.)

March’s increase in average weekly hours aggregated over the full universe of long-distance truckload workers is roughly equivalent to a 24,000 employee increase in industry employment (nearly 5 percent) — which illustrates just how big a marginal effect movements in hours worked can have on trucking market supply. May data are likely to show an even larger increase in hours worked for specialized trucking firms given the temporary relaxation of Hours of Service regulations for fuel tank haulers during the mid-May Colonial Pipeline outage. 

Household survey data suggest that younger and Hispanic drivers have been most responsive to the trucking industry’s recent hiring push.

The number of actively employed truckers (excluding private fleets) is up by about 25,000 drivers — or about 2 percent — since the fall when the industry began to roll out hiring incentives such as higher wages and signing bonuses. This data is up to date through April 2021 from the U.S. Census Bureau’s Monthly Basic Current Population Survey, made available through the University of Minnesota/IPUMS-USA, and are smoothed and seasonally adjusted.

Younger adults under age 35 and Hispanics are the largest demographic components of that increase. By contrast, shadow slack — including drivers who are employed but not actively working or unemployed — is highest among drivers aged 35 to 54 (both relative to the 2016-2019 average and relative to 2020-Q4).

Online searchers for CDL training are up sharply, but the surge is not being driven by states ending emergency Unemployment Insurance benefits.

There has been an enormous amount of public debate over the degree to which pandemic-era policies — particularly the expansion of emergency Unemployment Insurance (UI) benefits — might be keeping workers on the sidelines of the labor market. In recent weeks, 24 states have announced that they will end these emergency benefits in response to rising private-sector alarm over widespread hiring challenges. (State count current as of June 1, 2021.)

Online search activity for keywords that signal early interest in becoming a commercial truck driver increased sharply in April and May (chart below). (As we’ve previously written, online search activity for Commercial Driver’s Licence [CDL] training is a very early indicator of driver supply. The data, which were accessed via Google Trends, begin in January 2004 and are seasonally adjusted and detrended to account for evolving job search behavior over the past two decades.)

However, it does not appear that the increase is being driven by internet traffic from states that have announced an end to emergency UI benefits. Some states that are ending UI benefits in June have indeed seen a surge in online interest in CDL training — for instance Texas, Georgia and Arizona; but so have several big states that have not announced policy changes (e.g., California, New York and Wisconsin). Similarly, a number of states that will be ending emergency UI — such as Tennessee, Indiana, Oklahoma and West Virginia have seen flat to declining online interest in CDL training. 

June will provide a true test of the tug-of-war between the industry’s efforts to onboard new drivers and policymakers’ support to the economy. As states unwind pandemic-era policies and the services sector heats up with broader reopening, many of the labor market ideas that the freight industry has been debating in recent months will either yield job gains or fail to materialize. The one thing that is guaranteed to be in plentiful supply this summer is a continued conversation about trucking labor shortages.

The post Three Data Points For Better Conversations About the Trucker Shortage appeared first on Convoy.

Eating-out collapsed during the earliest weeks of the pandemic, but the food service industry quickly pivoted to take-away dining and total inflation-adjusted spending at restaurants and bars quickly recovered to 70%-80% of pre-pandemic dollars where it stagnated through Q4-2020 and Q1-2021. But it has begun to surge with springtime reopenings and is now only 5.7 percent below where it was before the pandemic; real grocery spending per capita has held up around 7 percent above pre-pandemic levels.

The sudden shift in Americans’ eating habits triggered a seismic realignment of the country’s food and beverage distribution networks. Freight demand from grocery retailers and food manufacturers surged in Q2-2020 and has since stabilized near its highest levels since the early 1990s. But there have been persistent questions about whether this pandemic-induced reversal of a longstanding secular trend in food consumption would have legs. Today’s data suggest that it may not.

Headline retail sales were essentially flat (seasonally adjusted) in April, although accelerating consumer price inflation is distorting the headline numbers as reported. After accounting for accelerating consumer price inflation (the retail sales data are reported in nominal dollar terms), retail sales fell by 0.8 percent in April.

Factory output data released separately by the Federal Reserve Board this morning suggest that accelerating consumer price inflation will be accelerated by industrial tailwinds on the near horizon. Factory output grew as the industrial sector recovery continues to lag behind the consumer retail recovery, but the pace of growth was slower than in recent months (February’s weather disruptions aside). Commodity input and supply chain disruptions clearly weighed down factory output — notably in the automotive sector where factory capacity utilization fell to its lowest level in a decade (ignoring the deep drop in April and May 2020 which were the result of pandemic-related factory shutdowns). Utilization in the oil and gas sector also remains well below historic trends despite high and rising energy prices.

Follow along with our Freight Research here.

The post Eating-Out Caught Up With Eating-In during April for the First Time since the Pandemic Began appeared first on Convoy.

Still, the American labor market has made a remarkable recovery a year after the U.S. economy shut down during the early weeks of the Covid-19 pandemic, pushing 17 million workers into sudden unemployment and throwing the trucking economy into a brief freefall. April jobs market data released this morning by the Bureau of Labor Statistics (BLS) would have been unimaginable just a few months ago.

During the dark days of Spring 2020, few would have anticipated that just 12 months later firms would be struggling to find enough workers. But that is indeed happening: More than a third of companies surveyed by the Federal Reserve Bank of New York in April 2021 cited labor availability as a “major constraint” to growing their businesses and the National Federation of Independent Business’ index of businesses unable to find skilled workers hit an all-time high going back to the 1970s. Casual talk of labor shortages is inherently controversial: Those looking to hire tend to see shortages around every corner while existing workers will often point to more generous compensation as the most obvious market clearing mechanism. 

Rising prices signal some degree of — perhaps temporary, perhaps more enduring — supply/demand imbalance in the freight market. The fact that trucking industry employment reported today by the BLS was still 3% below where it was on the eve of the pandemic in January 2020 adds further fuel to the idea that something isn’t working in the labor market for truckers. (As we’ve previously noted, the employment numbers reported in BLS’ monthly jobs report don’t cover the full universe of truck drivers.) It’s worth asking: Where did all the drivers go?

Household survey data through March suggest that there is no one-size-fits-all explanation for the trucking industry’s labor woes. (The survey data is available only through March since publication of the detailed results lags the BLS report by several weeks.)

• Shadow supply of owner-operators is elevated, but new entrants have offset exits. Active employment among owner-operators is at or above pre-pandemic levels (depending on the benchmark one references), but there is also evidence of elevated numbers of owner-operators sitting on the sidelines of the labor market (e.g., employed but not working, unemployed, or having recently left the labor market for retirement or other reasons). The gap between elevated slack and net employment gains for owner-operators has been driven by reasonably strong new entrants. 
• New driver recruitment, not workers on the sidelines of the market, is the primary challenge for fleets. The situation is very different for company drivers: Employment is below pre-pandemic levels according to various benchmarks, and there is no evidence of elevated numbers of company drivers on the sidelines of the labor market. If anything, indicators of shadow supply are below pre-pandemic levels for company drivers. This suggests that the main challenge for fleets is recruitment and retention: New driver inflows are well below historic norms. Since fleet employment outnumbers owner-operator employment by several orders of magnitude, their inability to attract new drivers has contributed to a net decline in the number of active for-hire drivers.

The slow and inelastic response of labor supply to trucking demand is the industry’s headline preoccupation. There have been other smaller, easily overlooked, shifts in the backdrop. 

BLS data disaggregated by gender show that women are still a tiny fraction of trucking industry employment, but they have made substantial progress over the past year, particularly at companies that focus on local/regional hauls. As of March, the number of women employed at truck transportation companies is 2.3 percent above where it was before the pandemic, while among men, employment is still 4 percent below where it was. At firms that focus on local/regional hauls, employment among women is 18 percent above pre-pandemic levels — which works out to about 5,000 additional employees — while among men it’s 2 percent below, a net decline of about 5,000 employees. Employment of women at long-haul fleets is also above pre-pandemic levels, but by a much smaller margin. (Publication of employment data by gender lags the official Employment Situation Report by several weeks, so the March 2021 data is the most recent.)

Over-the-road lifestyle considerations have long been identified as a barrier to women in trucking, but the industry is slowly and gradually shifting toward more and more reliance on shorter local and regional hauls as supply chains and distribution networks adapt to more active inventory management. This should make trucking more attractive to all workers who have a preference for staying closer to home. It will also amplify the impact of efficiency gains, since the most practical productivity enhancements focus on helping truckers make the most of their regulation-constrained hours.

View our economic commentary disclaimer here.

The post Where did all the drivers go? appeared first on Convoy.

Any natural disaster sparks turmoil in freight markets, but hurricanes are particularly disruptive. For more transient weather events such as tornados, truck costs increase about 5%-10% for loads inbound or moving through impacted areas; for hurricanes, price surges can get as high as 50%. The surges are driven by a combination of supply and demand: Retailers typically rush to move emergency supplies (e.g., bottled water, shelf-stable food, protective plywood) into impacted regions, there is very little outbound freight demand to balance truck costs, roads tend to be congested with evacuees, and some carriers are reluctant to potentially put their drivers and vehicles in harm’s way. In a nationwide survey of carriers of all sizes conducted by Convoy last fall, about 40% of carriers said that they generally try to avoid hauling into major natural disaster zones.

For anyone moving freight this summer, it’ll be particularly important to get all your back up options lined up. Weather forecasts can miss the mark — especially the further out they go — but even a single hurricane can be massively disruptive for some supply chains with facilities in the storm’s path. It’s never too soon to prepare.

The post First 2021 Hurricane Forecasts Predict Record Storms appeared first on Convoy.

Some caution is necessary in interpreting today’s data — particularly the 61,000 construction sector job losses. Winter storms across much of the country in mid-February clearly weighed on the labor market, potentially to the tune of tens of thousands of jobs. These weather effects are transitory, so any long-term implications of today’s report should be read with due caution.

Extreme weather events like Winter Storm Uri — which crippled much of the United States, particularly in the Midwest and South, last month — are not captured by conventional seasonal adjustment and can substantially distort the real-time interpretation of economic data. The sophisticated seasonal adjustment methods used by official statistics agencies are designed to capture the “normal” monthly (or quarterly, or weekly, etc.) movements, including some degree of gradual evolution in what is “normal” over time. But they are not designed to account for the freak weather experienced in February 2021. 

Major weather events such as snow storms, hurricanes, floods and wildfires are associated with delays in hiring and onboarding new workers, and temporarily slimmer payrolls in sectors where workers are commonly hired on short term contracts (e.g., construction) or where unpaid leave is the norm (e.g., food service and accommodation). Standard approaches to seasonal adjustment will capture some of these fluctuations (e.g., the typical impact of recent hurricanes in late summer months), but will not capture outlier events.

These weather effects above and beyond “normal” seasonality can be substantial. According to a 2016 analysis published by the Brookings Institution, accounting for weather effects can shift the monthly payroll number by 100,000 in either direction. A shift of that magnitude is particularly important when it changes our overall read on the state of the economy: For example, according to the same Brookings study, weather adjustment would have increased the estimated pace of employment growth during the winters of 2013-14 and 2014-15, a period of broad-based concerns that the U.S. economy recovery was faltering.

The week that the February 2021 Current Employment Situation data was collected, more than one-in-five Americans were in an area experiencing “major” snowfall according to the National Oceanic and Atmospheric Administration’s Snowfall Impact Scale.[2][3] (The data does not cover the roughly one-third of the country west of the Continental Divide.) We conservatively estimate that Winter Storm Uri subtracted about 60,000 jobs from the headline February employment number based on regional snowfall data; in more extreme models based on heating degree days, the effect could be as large as 290,000 jobs. For the trucking industry, we estimate that effect was on the order of 10,000 fewer jobs due to weather effects. (The baseline estimate is “conservative” since it accounts only for the effects of unseasonably large snowfalls, not the downstream effects of utility outages.)

Looking beyond February, we can expect the weather-related distortions to continue into March as communities recover and rebuild from the physical damage associated with the storm, artificially inflating job gains. Data outliers will also echo well into the future as inputs into estimates of seasonal factors in the coming years (unless BLS decides to exclude them, which they occasionally do). 

A final complication is how the effects of weather events on payroll employment interact with the boom in remote work sparked by the Covid-19 pandemic. Major weather events that do not adversely affect physical safety or utilities likely had a bigger negative effect on employment in the past when most office workers commuted daily. But with remote work now more common — 37% of households reported that an adult had substituted typical in-person work for remote work as a result of the pandemic, according to the Census Bureau’s most recent Household Pulse Survey — weather events might be somewhat less disruptive to the labor market than in the past. 

In the longer-term, global climate change will challenge all of us who make business decisions based on economic data to think more critically about what exactly to read from the monthly tea leaves. “Normal” seasonality will become less common, making it all the trickier to disentangle signal amid the data snowfall.

View our economic commentary disclaimer here.

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