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Friday, July 8, 2016

June 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment “roared back” in June -- rising by 287,000 jobs, significantly more than even the upper end of expectations (+235,000; consensus: 180,000). Combined April and May employment gains were trimmed by 6,000 (April: +21,000; May: -27,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) rose 0.2 percentage point (to 4.9%) as only a fraction of those who entered/returned to the labor force (+414,000) found employment (+67,000). 
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Observations from the employment reports include:
* This disparity in job gains between the establishment (+287,000) and household (+67,000) surveys was notable.
* Manufacturing gained 14,000 jobs in June. That result is broadly consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which expanded for the first time in seven months. Wood Products gained 2,100 jobs, but Paper and Paper Products employment dropped by 400.
* Mining and logging shed 5,000 jobs, with 3,500 coming from support activities for mining and another 2,200 from oil and gas extraction. Construction employment was unchanged.
* Over 70% (185,900) of May’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +29,900; Professional & Business Services: +38,000 (of which Temp Help comprised 15,200); Education & Health Services: +59,000; and Leisure & Hospitality: +59,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.450 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.653 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained only 2,000 jobs since 2014 while FS&D jobs have expanded by 465,200. 
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* The employment-population ratio edged down to 59.6 %; 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 fell by 191,000 to over 94.5 million. 
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* As a result of new and/or re-entrants to the labor force, the labor force participation rate (LFPR) also ticked up to 62.7%, comparable to levels seen in 1978. Average hourly earnings of all private employees increased by $0.02 (to $25.61), resulting in a 2.6% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.51 (+2.4% YoY). With the CPI running at an official rate of +1.0% 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 jumped by 451,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- fell by 587,000. There are now 1.7 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by 20.2 million). PTER employment, by contrast, stopped declining in October 2015 and in June once again fell below 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 June decreased by $5.3 billion, to $180.6 billion -- the highest amount on record for that calendar month, although barely higher than June 2015. 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 June was 4.2% 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.

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