February 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment jumped by 242,000 jobs in February -- crushing expectations of +190,000. In addition, combined December and January employment gains were boosted by 30,000 (December: +9,000; January: +21,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.9% as the change in the number of people employed (+530,000) more than matched the increase in the civilian labor force (+374,000). 

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Observations from the employment reports include:

* Manufacturing lost 16,000 jobs in February. Those results are generally consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which -- although it rose 2.6 percentage points in February -- declined in eight of the 12 months ending in February, and has been in outright contraction during the most recent three months. Wood Products: -600 jobs; Paper and Paper Products: -700.

* Mining and logging shed 18,000 jobs, with 15,900 coming from support activities for mining and another 1,800 from oil and gas extraction. Construction added 19,000 jobs.

* Over 92% (211,900) of February’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +54,900; Professional & Business Services: +23,000 (although temp-help lost 9,800 jobs); Education & Health Services: +86,000; and Leisure & Hospitality: +48,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.419 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.629 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. If trends since 2015 continue, by the end of 2018 there will be as many wait staff and bartender jobs as manufacturing jobs in the United States. 

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* The employment-population ratio edged up to 59.8%; roughly speaking, for every five people added to the population, fewer than three are employed. Meanwhile, the number of employment-age persons not in the labor force retreated by 374,000 to 96.9 million. 

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* The labor force participation rate (LFPR) also rose to 62.9%, comparable to levels seen in late 1977. Average hourly earnings of all private employees fell by $0.03 (to $25.35), resulting in a 2.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), however, hourly wages were unchanged at $21.32 (+2.4% YoY). With the CPI running at an official rate of +1.4% YoY, wages are technically rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls was shortened by 0.2 hour, to 34.4 hours. 

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* Finally, full-time jobs increased by 65,000 while part-time jobs jumped by 489,000. Full-time jobs have been trending higher since December 2009, and are now 1.331 million above the pre-recession high (although, for perspective, the non-institutional, working-age civilian population has risen by an estimated 19.4 million during that time period). Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million. 

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For a “sanity check” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although highly seasonal, the data show the amount withheld in February increased by $16.2 billion, to $207.3 billion -- the highest amount on record for that calendar month. To reduce some of the volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending February were 4.9% above the year-earlier average, well off the peak of +13.8% set back in September 2013.

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.