October 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 161,000 jobs in October -- below expectations of +178,000. Partially offsetting that disappointing number, combined August and September employment gains were revised up by 44,000 (August: +9,000; September: +35,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged back down to 4.9% as both the labor force (-195,000) and the number of people employed (-43,000) shrank. 

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Observations from the employment reports include:

* Once again, employment gains were at least partially a function of imputed jobs from the CES (birth/death model) adjustment. In fact, the BLS applied the largest positive CES adjustment to the base data of any October since 2000 (but roughly average seasonal adjustment); had the average CES adjustment been applied, headline jobs gains would have been approximately 50,000. In light of findings by the Economic Innovation Group that fewer new businesses have been started in the last five years than at any time in the last 30 years, we find that adjustment somewhat suspect.

* Manufacturing lost 9,000 jobs in October. That result is also noteworthy, as the Institute for Supply Management’s manufacturing employment sub-index registered its strongest reading since June 2015. Wood Products gained 2,100 jobs and Paper and Paper Products employment declined by 900. Construction employment rose by 11,000 -- paralleling behavior of ISM’s construction employment sub-index.

* Nearly 87% (103,900) of October’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: -1,100; Professional & Business Services: +43,000; Education & Health Services: +52,000; and Leisure & Hospitality: +10,000. 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 36,000 jobs since 2014 while FS&D jobs have expanded by 546,700. 

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* The number of employment-age persons not in the labor force jumped by 425,000 -- to 94.6 million. As a result, the employment-population ratio ticked down to 59.7 %; roughly speaking, for every five people added to the population, only three are employed. 

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* The labor force participation rate (LFPR) also nudged down to 62.8%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.10 (to $25.92), resulting in a 2.8% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.72 (+2.4% YoY). Although the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings rose to $891.65 (+2.5% YoY). 

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* Full-time jobs fell by 103,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slipped by 5,000. There are now 2.3 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 21.2 million). PTER employment, by contrast, stopped declining in October 2015 and has since been oscillating around 6 million. Those holding multiple jobs retreated slightly (-87,000) from September’s post-recession peak of 7.9 million.

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.