September 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment kept treading water with 156,000 jobs added -- below expectations of +168,000. Also, combined July and August employment gains were revised down by 7,000 (July: -23,000; August: +16,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 5.0% as growth in the labor force (+444,000) once again outpaced the change in the number of people who found employment (+354,000). 

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Observations from the employment reports include:

* For a change, employment gains were not primarily functions of either imputed jobs from the CES (birth/death model) adjustment or seasonal adjustment. In fact, the BLS applied the most negative CES adjustment and the smallest seasonal adjustment to the base data of any September since 2000; had the average adjustments been applied, headline jobs gains might have exceeded 300,000.

* Manufacturing lost 13,000 jobs in September. That result is somewhat consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which contracted at a slower pace. Wood Products lost 1,600 jobs and Paper and Paper Products employment declined by 500.

* The “bleeding” that occurred in mining and logging employment during the past year appears to finally have been largely staunched. Construction employment jumped by 23,000 -- paralleling behavior of ISM’s construction employment sub-index.

* Nearly 80% (133,000) of September’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +22,000; Professional & Business Services: +67,000; Education & Health Services: +29,000; and Leisure & Hospitality: +15,000. This is a persistent issue, as we have repeatedly highlighted: There are nearly 1.5 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but over 1.7 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has lost 32,000 jobs since 2014 while FS&D jobs have expanded by 546,600. 

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* The employment-population ratio ticked up to 59.8 %; roughly speaking, for every five people added to the population, only three are employed. Meanwhile, the number of employment-age persons not in the labor force fell by 207,000 -- to 94.2 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 nudged up to 62.9%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.06 (to $25.79), resulting in a 2.6% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.05, to $21.68 (+2.7% YoY). However, the average workweek for all employees on private nonfarm payrolls increased by 0.1 hour (to 34.4 hours), which caused average weekly earnings to rise from $882.54 to $887.18. 

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* Full-time jobs were essentially unchanged while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- decreased by 159,000. There are now 2.4 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by over 20.9 million). PTER employment, by contrast, stopped declining in October 2015 and has since been oscillating 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 “noisy” and highly seasonal, the data show the amount withheld in September fell by $14.2 billion, to $178.7 billion (still, a record for the month of September); that is also +4.4% YoY. 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 September was 4.3% 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.