April 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 211,000 jobs in April -- above expectations of +185,000. Moreover, combined February and March 2017 employment gains were revised down by 6,000 (February: +13,000; March: -19,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 4.4% as growth in the number of employed (+156,000) outpaced that of people (re)entering the labor force (+12,000). 

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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 April, there is little evidence pointing to such a conclusion. Imputed jobs from the CES (business birth/death model) adjustment were in the top quartile (76^th percentile) of the range of values for the month of April since 2000. However, the BLS also applied only an average seasonal adjustment to the base data of any April since 2000.

* Job gains in the household (156,000) and establishment (211,000) surveys were in fairly close agreement for a change. As analyst Steven Hansen often points out, “From a survey control point of view, the common element [between the two surveys] is jobs growth -- and if they do not match, your confidence in either survey is diminished.”

* As for industry details, Manufacturing added 6,000 jobs in April. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a slower pace in April. Wood Products employment rose by 200 jobs; Paper and Paper Products: +400. Construction employment advanced by 5,000 -- which mirrors construction employment trends in ISM’s services report.

* Nearly 40% (73,500) of April’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +6,300; Education & Health Services: +41,000; and Leisure & Hospitality: +26,200. This is a persistent issue, as we have repeatedly highlighted: There are nearly 1.4 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but almost 2.0 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained 53,000 jobs YTD2016 while FS&D jobs have expanded by 91,200. 

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* The number of employment-age persons not in the labor force (NILF) jumped up by 162,000 -- to 94.4 million. April’s NILF estimate is within 1.0% of December 2016’s record high. Meanwhile, the employment-population ratio (EPR) increased fractionally to 60.2%; thus, for every five people being added to the population, only three are employed. 

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* Given the number of labor force (re)entrants, the labor force participation rate (LFPR) ticked down to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.07, to $26.19, resulting in a 2.6% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.06, to $21.96 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded by six minutes (to 34.4 hours), average weekly earnings increased by $5.02, to $900.94 (+2.5% YoY). With the consumer price index running at an annual rate of 2.4% in March, workers are barely holding steady in terms of purchasing power. 

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* Full-time jobs jumped by 480,000. 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 305,000. There are now over 4.1 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). Those holding multiple jobs dropped by 277,000. 

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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 April slumped by $44.4 billion, to $190.5 billion (-18.9% MoM and +4.5% 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 April was 3.7% 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.