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Friday, May 3, 2013

April 2013 Employment Report

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According to the Bureau of Labor Statistics’s (BLS) establishment survey, non-farm payroll employment rose by 165,000 in April (exceeding the 135,000 forecast of economists polled by MarketWatch). The unemployment rate (based upon the BLS’s household survey) edged down by 0.1 percentage point to 7.5 percent. Most private supersectors reported at least some job growth. Government employment contracted at all levels. The change in total non-farm payroll employment for February was revised from +268,000 to +332,000, and the change for March was revised from +88,000 to +138,000. 

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As seems to have been the case for longer than we’d like to recall, the underlying details in the report at least partially belied the relatively upbeat headline number. For example: 

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·   The ratio of employed persons to the entire population remained mired in the range seen since late 2009.
·   The number of people not in the labor force retreated from March’s record high, but the drop was a marginal 31,000 (to 89.9 million). I.e., 90 million people who could otherwise make a positive contribution to the economy have given up looking for employment. 

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·         The civilian labor force participation rate (the share of the entire U.S. population 16 years and older working or seeking work) remained unchanged at 63.3 percent -- the lowest since 1979.
·   Although average hourly earnings of production and non-supervisory employees rose by $0.04 relative to March, the year-over-year percentage increase fell back to 1.7 percent. With the price index for urban consumers rising at an annualized pace of 1.5 percent in March, wage increases are just keeping up with current, official estimates of price inflation. To put things into perspective, however, average wages would need to be in the neighborhood of $130 per hour to have kept up with inflation since 1970.
·   Another problem was the drop in average weekly hours for all employees (not just those in production and non-supervisory positions), which posted a surprising and disappointing decline from 34.4 to 34.6 on expectations of an unchanged number. This amounts to a 12 minute shorter workweek on average for the entire U.S. labor force. ZeroHedge (and Karl Denninger) expounded on this aspect of the report (emphases in the original):
It is when one considers that there were 135,474,000 full time Establishment Survey employees in April (rising by the much trumpeted 165,000), all of which worked on average 34.4 hours (down from 34.6 in March) according to the BLS. Multiply these together and one gets 4,660,305,600 total hours worked in April, a drop of 21,385,800 million hours from the 4,681,691,400 total hours worked in March.
Then apply the average hourly wages of $23.83 in March and $23.87 in April, and the total wages paid out in March ($111.565 billion) compared to April ($111.231 billion) amounted to a drop of $323.2 million.
Had the average weekly hours stayed flat as expected, this number should have been an increase of $323.5 million or a $646.8 million swing!
In other words, the US economy added 165,000 jobs and yet US businesses paid $323.2 million less in total wage compensation: only the second time there was a decline in the gross total monthly wages paid in 2013.
What does this mean for the bottom line?
Well, had the BLS reported flat average weekly hours worked at 34.6 as Wall Street had expected, while companies were paying out the same amount of hourly wages in April, the result would have been that instead of the BLS reporting a 165,000 increase in jobs, it would have had to report a drop of, drumroll, 618 thousand workers, or total April workers of 134,690,913: a 783 thousand negative worker swing, more than wiping out not only all the gains of April, but all prior upward monthly revisions as well

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·   One of our criticisms of the headline jobs number (and the overall report in general) is its failure to differentiate among job quality. A part-time position at a fast-food restaurant is given the same “weight” as a brain surgeon. Hence, we are disappointed to see that part-time employment rose by nearly twice the rate of full-time employment (278,000 versus 150,000, respectively).
·   Another issue is composition of job growth by age. “[J]ust like in prior months,” ZeroHedge observed, “a key part of the growth was attributable to those aged in the 55-and-over group, which added 79K workers, although a surprising change was the massive addition of some 187K workers in the lowest paid, 20-24 age group -- the biggest monthly jump in this category since September. Was this due to students entering the workforce early? The reason is unclear. What is clear is that the prime working demographic, those aged 25-54 saw yet another decline, as 16K workers exited the ranks of the employed.” 

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Withholding taxes fell dramatically in April, relative to March; this turn of events is unsurprising in light of April not being the end of a quarter. 

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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 2.58 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 April’s rate of job gains, it will take until August 2014 to recapture January 2008’s employment level (i.e., without adjusting for population growth).
Bottom line: This jobs report is positive on the surface, but underlying details are less positive. Even Econintersect’s Steven Hansen -- who diligently attempts to present a balanced view in all of his posts -- ultimately was forced to appeal to a statement by Bill Dunkelberg, chief economist at the National Federation of Independent Business, to eke out a reasonably positive conclusion about the employment situation.
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.

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