May 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 138,000 jobs in May -- well below expectations of +185,000. In addition, combined March and April employment gains were revised down by 66,000 (March: -29,000; April: -37,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 4.3% as the number of persons leaving the labor force (429,000) also caused the number of unemployed to shrink (-195,000). 

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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 May, there is some evidence pointing to such a conclusion. Imputed jobs from the CES (business birth/death model) adjustment were the second-highest in the range of values for the month of May since 2000. However, the BLS also applied a slightly below-average seasonal adjustment to the base data of any May since 2000. Had average adjustments been used, May’s job gains might have been closer to just +84,000.

* The disparity between the household (-233,000) and establishment (+138,000) surveys was again quite wide. 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 lost 1,000 jobs in May. Wood Products employment fell by 2,400 jobs; Paper and Paper Products: -500. Construction employment advanced by 11,000.

* Nearly 58% (84,800) of May’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: -6,100; Temporary Help Services: +12,900; Education & Health Services: +47,000; and Leisure & Hospitality: +31,000. This is a persistent issue, as we have repeatedly highlighted: There are over 1.3 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 2.0 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained 55,000 jobs YTD2017 while FS&D jobs have expanded by 123,100. 

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* The number of employment-age persons not in the labor force (NILF) jumped up by 608,000 -- to 95.0 million. May’s NILF estimate is within 0.1% of December 2016’s record high. Meanwhile, the employment-population ratio (EPR) decreased to 60.0%; thus, for every five people being added to the population, only three are employed. 

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* Given the number of people exiting the labor force, the labor force participation rate (LFPR) ticked down to 62.7% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.04, to $26.22, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.03, to $22.00 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings increased by $1.38, to $901.97 (+2.5% YoY). With the consumer price index running at an annual rate of 2.2% in April, workers are holding steady in terms of purchasing power. 

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* Full-time jobs tumbled by 367,000. 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 53,000. There are now over 3.7 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by over 21.6 million). Those holding multiple jobs dropped by 94,000. 

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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 May rose by $7.0 billion, to $197.6 billion (+3.7% MoM and +6.3% 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 May was 6.4% 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.