March 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added just 98,000 jobs in March -- considerably below expectations of +178,000. Moreover, combined January and February 2017 employment gains were revised down by 38,000 (January: -22,000; February: -16,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged dropped to 4.5% as growth in the number of employed (+472,000) outpaced that of people (re)entering the labor force (+145,000).

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Observations from the employment reports include:

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; for March, there is no clear evidence pointing to such a conclusion. Imputed jobs from the CES (business birth/death model) adjustment were near the bottom (6^th percentile) of the range of values for the month of March since 2000. However, the BLS also applied the least negative seasonal adjustment to the base data of any March since 2000; had average adjustments been applied, headline jobs gains could have been an even more measly 65,000.

* As for industry details, Manufacturing added 11,000 jobs in March. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a faster pace in March. Wood Products employment rose by 900 jobs; Paper and Paper Products: +300. Construction employment advanced by 6,000 -- which mirrors construction employment trends in ISM’s services report. 

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* The number of employment-age persons not in the labor force (NILF) ticked up by 23,000 -- to 94.2 million. March’s NILF estimate is within 1.0% of December 2016’s record high. Meanwhile, the employment-population ratio (EPR) increased fractionally to 60.1%; thus, for every five people being added to the population, only three are employed. 

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* With so few labor force (re)entrants, the labor force participation rate (LFPR) was unchanged at 63.0% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.05, to $26.14, resulting in a 2.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.90 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours, average weekly earnings increased by $1.71, to $896.60 (+2.4% YoY). With the consumer price index running at an annual rate of 2.7% in February, workers’ purchasing power keeps eroding. 

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* Full-time jobs jumped by 476,000. 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 151,000. There are now over 3.6 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 21.3 million). Those holding multiple jobs jumped to 8.0 million (+138,000), just shy of August 2008’s peak of 8.1 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 March soared by $31.1 billion, to a new record of $234.9 billion (+15.2% MoM and +8.4% 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 March was 6.7% above the year-earlier average, but 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.