May 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by a paltry 38,000 jobs in May -- a mere fraction of the +158,000 analysts had expected. That meager job growth compounded bad news from downward revisions to March and April employment gains totaling -59,000 (March: -22,000; April: -37,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell 0.3 percentage point (to 4.7%) as the drop in the number of unemployed persons (-484,000) exceeded the contraction in the labor force (-458,000). 

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Observations from the employment reports include:

* Manufacturing lost 10,000 jobs in May. Those results are broadly consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which -- while remaining in contraction -- was stable in May. Wood Products, and Paper and Paper Products employment both gained 700 jobs.

* Mining and logging shed 11,000 jobs, with 6,100 coming from support activities for mining and another 1,700 from oil and gas extraction. Surprisingly, Construction shrank by 15,000 jobs.

* Over 100% (99,400) of May’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +11,400; Professional & Business Services: +10,000 (although Temp Help dropped by 21,000); Education & Health Services: +67,000; and Leisure & Hospitality: +11,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.461 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.643 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has lost 9,000 jobs since 2014 while FS&D jobs have expanded by 455,000. 

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* The employment-population ratio edged down to 59.7%; roughly speaking, for every five people added to the population, three are employed. Meanwhile, the number of employment-age persons not in the labor force jumped by 664,000 to a new record of over 94.7 million. 

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* As a result of so many people leaving the labor force, the labor force participation rate (LFPR) also retreated to 62.6%, comparable to levels seen in 1978. Average hourly earnings of all private employees increased by $0.05 (to $25.59), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.03, to $21.49 (+2.4% YoY). With the CPI running at an official rate of +1.1% YoY, in theory wages are rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours. 

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* Full-time jobs edged down by 59,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- jumped by 468,000. There are now 1.260 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by 20.0 million). PTER employment, by contrast, stopped declining in October 2015 and -- until May’s jump -- had been hovering around 6 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 May increased by $3.6 billion, to $185.9 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 May was 3.9% 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.