December 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 156,000 jobs in December -- considerably below expectations of +175,000. Combined October and November employment gains were revised up by 19,000 (October: -7,000; November: +26,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 4.7% -- pushed higher as only about one-third (63,000) of those (re)entering the labor force (184,000) found jobs. 

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Observations from the employment reports include:

* Employment gains in December were once again heavily influenced by -- albeit somewhat compensating -- adjustment factors. Imputed jobs from the CES (business birth/death model) adjustment was the most negative for the month of December since 2000. However, the BLS also applied the largest seasonal adjustment to the base data of any December since 2000; had average adjustments been applied, headline jobs gains would have been roughly 90,000.

* Manufacturing added 17,000 jobs in December -- the first gain since July. That result is consistent with the Institute for Supply Management’s manufacturing employment sub-index, which expanded at a faster pace in December. Wood Products gained 2,100 jobs, but Paper and Paper Products employment fell by 900. Construction employment also declined by 3,000 -- which is contrary to ISM’s employment change for Construction.

* Essentially 80% (115,300) of December’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +6,300; Professional & Business Services: +15,000 (although the harbinger of labor demand, Temporary Help Services, dropped by 15,500); Education & Health Services: +43,200; and Leisure & Hospitality: +24,000. 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 almost 1.8 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing lost 45,000 jobs in 2016 while FS&D jobs have expanded by 246,600. 

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* The number of employment-age persons not in the labor force rose by 18,000 -- to a new record high above 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) rose fractionally to 62.7%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees turned positive ($0.10), to $26.00, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.07, to $21.80 (+2.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours, average weekly earnings increased by $3.43, to $891.80 (+2.3% YoY). 

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* Full-time jobs rose by 35,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- dipped by 61,000; so-called “voluntary” part-time employment, by contrast, jumped by 192,000. There are now almost 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 nearly 21.6 million). PTER employment, by contrast, has resumed falling only in the last few months after oscillating around 6 million since October 2015. Those holding multiple jobs tumbled (-258,000), and is now well below 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 December jumped by $37.3 billion, to $216.0 billion (but -0.1% 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 December was 3.1% 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.