July 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 209,000 jobs in July -- well above expectations of +180,000. In addition, combined May and June employment gains were revised up by 2,000 (May: -7,000; June: +9,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) rounded down to 4.3% as expansion of the labor force (+349,000) was nearly matched by growth in the number of persons employed (+345,000). 

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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; July may be such a case. Imputed jobs from the CES (business birth/death model) adjustment were the highest for any month of July since 2000, but the BLS also applied one of the least-negative (12^th percentile) seasonal adjustments to the base data. Had average adjustments been used, July’s job gains might have been closer to +140,000. Another indication July’s job gains may be more statistical than tangible comes from new seasonal adjustments, which created a significant discrepancy between the adjusted and unadjusted data; unadjusted data backward revisions were down while the adjusted data were up.

* As for industry details, Manufacturing gained 16,000 jobs in July. That result runs somewhat counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a slower pace in July. Wood Products employment rose by 300 jobs; Paper and Paper Products: +100. Construction employment advanced by 6,000 -- which mirrors construction employment trends in ISM’s services report.

* Nearly 41% (83,200) of July's private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +900; Temporary Help Services: +14,700; Social Assistance: +5,600; and Leisure & Hospitality: +62,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.32 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 2.09 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained 82,000 jobs YTD2017 while FS&D jobs have expanded by 210,000. 

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* The number of employment-age persons not in the labor force (NILF) retreated by 156,000 -- to 94.7 million. July’s NILF estimate remains within 0.5% of December 2016’s record high, however. 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 people (re)entering the labor force, the labor force participation rate (LFPR) ticked up to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.09, to $26.36, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.06, to $22.10 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $3.10, to $909.42 (+2.8% YoY). With the consumer price index running at an annual rate of 1.6% in June, workers are -- officially, at least -- holding steady in terms of purchasing power. 

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* Full-time jobs retreated by 54,000; there are now roughly 4.0 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 22.0 million. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- fell by 44,000. Those holding multiple jobs edged down by 50,000. 

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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 July fell by $0.8 billion, to $194.8 billion (-0.4% MoM, but +9.7% 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 July was 8.1% 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.