October 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 171,000 in October. Despite the jobs gain, the unemployment rate edged up to 7.9 percent because more people reentered the workforce. With the exception of Mining & Logging, all private supersectors reported some growth in October; government employment, on the other hand, contracted at the federal and state levels. The change in total non-farm payroll employment for August was revised from +142,000 to +192,000, and the change for September was revised from +114,000 to +148,000.
 

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The number of people not in the labor force fell by 369,000 (to 88.3 million) in October, retreating from August’s all-time high of 88.9 million. The ratio of employed persons to the entire population moved to 0.59, its highest value since August 2009.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) ticked up to 63.8 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees dropped to 1.12 percent. With the price index for urban consumers rising at a 2.0 percent annual pace, that means wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

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Full-time employment added another 233,000 jobs to September’s increment of +838,000 jobs. Part-time employees fell, however, by 269,000 jobs.
 

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We like to cross-check the validity of data whenever alternative sources are available. The U.S. Treasury’s income and withholding tax data is one source we use to sanity test the BLS’s non-farm employment report. In principle, revenue from withholding taxes should rise when more people are working and fall when job losses occur. As the figure above shows, the revenue data are very “noisy;” even year-over-year percentage changes are quite volatile, thus we show a three-month moving average in the year-over-year line to better identify ongoing trends. The jump in October revenue appears to support the BLS’s claim of job growth; but we remain skeptical of both September’s original and revised estimates.
 

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Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 4.27 million fewer jobs than at the January 2008 peak.
 

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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At October’s rate of job gains, it would take until November 2014 to retake January 2008’s employment level (i.e., without adjusting for population growth).


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.