February 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 235,000 jobs in February -- considerably above expectations of +195,000. Combined December 2016 and January 2017 employment gains were revised up by 9,000 (December: -2,000; January: +11,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 4.7% as growth in the number of employed (+447,000) outpaced that of people (re)entering the labor force (+340,000). 

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Observations from the employment reports include:

* For once, most details “under the hood” supported the headline numbers. “This was a clean report with the cuffs and collars matching,” commented analyst Steven Hansen. “Consider this an excellent jobs report.” We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; it would be difficult to make that case about the February report, however. Imputed jobs from the CES (business birth/death model) adjustment were a bit above average (70^th percentile) for the month of February since 2000. However, the BLS also applied the most negative seasonal adjustment to the base data of any February since 2000; had average adjustments been applied, headline jobs gains could have exceeded 300,000.

* As to industry details, Manufacturing added 28,000 jobs in February. That result is somewhat consistent with the Institute for Supply Management’s manufacturing employment sub-index, which expanded at a slower pace in February. Both Wood Products and Paper and Paper Products employment rose by 1,500 jobs. Construction employment jumped by 58,000 -- which seems consistent with both recent residential building activity and construction employment trends in ISM’s services report. 

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* The number of employment-age persons not in the labor force (NILF) declined by 176,000 -- to 94.2 million. Nonetheless, February’s NILF estimate is within 1.0% of December’s record high. Meanwhile, the employment-population ratio (EPR) edged up to 60.0%; thus, for every five people being added to the population, only three are employed. 

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* Like the EPR, the labor force participation rate (LFPR) also rose fractionally to 63.0%, still comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.06, to $26.09, resulting in a 2.8% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.86 (+2.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings increased by $2.07, to $897.50 (+2.5% YoY). 

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* Full-time jobs rose by 326,000. In addition, those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- fell by 132,000. There are now over 3.2 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by 21.1 million). Those holding multiple jobs jumped to 7.8 million (+260,000), but still below September 2016’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 February fell by $14.1 billion, to $203.8 billion (-6.5% MoM and -1.7% 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 February was 4.1% 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.