June 2017 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 222,000 jobs in June -- well above expectations of +177,000. In addition, combined April and May employment gains were revised up by 47,000 (April: +33,000; May: +14,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 4.4% as expansion of the labor force (361,000) exceeded growth in the number of persons employed (+245,000). 

Click image for larger view

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 June, there is little evidence pointing to such a conclusion. While imputed jobs from the CES (business birth/death model) adjustment were below the average of values for the month of June since 2000, the BLS also applied a slightly above-average seasonal adjustment to the base data of any June since 2000. Had average adjustments been used, June’s job gains might have been roughly +280,000. Moreover, the disparity between the household (+245,000) and establishment (+222,000) surveys was relatively minor for a change.

* As for industry details, Manufacturing gained 1,000 jobs in June. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a faster pace in June. Wood Products employment fell by 2,200 jobs; Paper and Paper Products: -2,800. Construction employment advanced by 16,000 -- which mirrors construction employment trends in ISM’s services report.

* Nearly 43% (80,100) of June’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +8,100; Temporary Help Services: +13,400; Social Assistance: +22,600; and Leisure & Hospitality: +36,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.35 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 2.03 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained 53,000 jobs YTD2017 while FS&D jobs have expanded by 154,900. 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) retreated by 170,000 -- to 94.8 million. June’s NILF estimate is within 0.3% 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. 

Click image for larger view

* Given the number of people (re)entering the labor force, the labor force participation rate (LFPR) ticked up to 62.8% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.04, to $26.25, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $22.03 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls inched up (+0.1 hour) to 34.5 hours, average weekly earnings increased by $4.01, to $905.63 (+2.8% YoY). With the consumer price index running at an annual rate of 1.9% in May, workers are – officially, at least -- holding steady in terms of purchasing power. 

Click image for larger view

* Full-time jobs gained 355,000; there are now roughly 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 over 21.8 million. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 107,000. Those holding multiple jobs edged up by 50,000. 

Click image for larger view

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 June fell by $1.9 billion, to $195.6 billion (-1.0% MoM, but +3.3% 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 June 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.