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Friday, December 2, 2016

November 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 178,000 jobs in November -- slightly above expectations of +170,000. Combined September and October employment gains were revised down by 2,000 (September: +17,000; October: -19,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell to 4.6% -- pushed lower by a combination of employment gains (+160,000) and a shrinking labor force (-226,000). 
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Observations from the employment reports include:
* Claims of artificially inflated headline employment gains in November would be difficult to prove. Imputed jobs from the CES (birth/death model) adjustment were in line with the historical average for the month of November since 2000. Moreover, the BLS applied the largest negative seasonal adjustment to the base data of any November since 2000; had the average seasonal adjustment been applied, headline jobs gains might have exceeded 310,000.
* Manufacturing lost 4,000 jobs in November. That result is not entirely inconsistent with the Institute for Supply Management’s manufacturing employment sub-index, which expanded at a slower pace in November. Wood Products gained 700 jobs and Paper and Paper Products employment was unchanged. Construction employment rose by 19,000.
* Nearly 82% (127,700) of November’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: -8,300 (despite the start of the holidays); Professional & Business Services: +63,000; Education & Health Services: +44,000; and Leisure & Hospitality: +29,000. 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 34,000 jobs since 2014 while FS&D jobs have expanded by 571,000. 
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* The number of employment-age persons not in the labor force jumped by 446,000 -- to a new record high near 95.1 million. Nonetheless, the employment-population ratio (EPR) was stable at 59.7 %; roughly speaking, for every five people added to the population, only three are employed. 
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* Although the EPR was unchanged, the labor force participation rate (LFPR) retreated to 62.7%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees declined by $0.03 (to $25.89), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.02, to $21.73 (+2.4% YoY). Although the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings edged down by $1.03, to $890.62 (+2.2% YoY). 
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* Full-time jobs edged up by 9,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- dropped by 220,000; so-called “voluntary” part-time employment, by contrast, jumped by 327,000. 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 21.4 million). PTER employment, by contrast, stopped declining in October 2015 and has since been oscillating around 6 million. Those holding multiple jobs increased slightly (+61,000), nearly surpassing September’s post-recession peak of 7.9 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 November fell by $4.1 billion, to $178.8 billion (still, a record for the month of November); that is also +1.0% 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 November was 4.5% 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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