January 2013 Employment Report

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According to the Bureau of Labor Statistics (BLS), non-farm payroll employment rose by a modest 157,000 in January. The unemployment rate was 7.9 percent, unchanged from the upwardly revised December estimate. All private supersectors reported some growth in January; government employment, by contrast, contracted at the federal and local levels. As part of the BLS’s annual benchmarking process, which showed 335,000 more jobs than initially estimated for all 2012, the change in total non-farm payroll employment for November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000. 

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Despite the upbeat revelation that more people were employed during 2012, other aspects of the employment report were still dismal. For example, the ratio of employed persons to the entire population remained mired in the range seen since late 2009, which means employment gains have barely kept pace with population growth. Also, the number of people not in the labor force jumped by 169,000 (to a new all-time high of 89.0 million) in January. 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) held steady at 63.6 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees extended recent gains when rising to 1.8 percent. Even so, with the price index for urban consumers rising at a 1.7 percent annual pace, wages are barely holding steady in real terms (i.e., wage increases just keeping up with price inflation). 

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Another 50,000 people found full-time jobs, but part-time employment reversed course and increased by a nearly identical 55,000. We suspect this reversal may be related to the ObamaCare requirement that firms with 50 or more employees provide health care benefits to everyone working 30 or more hours per week. 

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We use the U.S. Treasury’s income and withholding tax data 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. December’s outsized spike in taxes withheld was likely a result of year-end bonuses and moving payments forward in time to avoid the higher taxes that “kicked in” with the new year. Although taxes withheld in January declined relative to December, the data do not necessarily invalidate the BLS’s claim of job growth. 

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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 3.2 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 January’s rate of job gains, it will take until October 2014 to recapture 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.