August 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 156,000 jobs in August -- well below expectations of +180,000. In addition, combined June and July employment gains were revised down by 41,000 (June: -21,000; July: -20,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) inched up to 4.4% as the labor force expanded (+77,000) but the number of persons employed contracted (-74,000). 

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Observations from the employment reports include:

* The establishment (+156,000) and household (-74,000) surveys were poorly matched in August.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; August may be such a case. Imputed jobs from the CES (business birth/death model) adjustment were roughly average for the month of August (since 2000), but the BLS also applied a very modest seasonal adjustment to the base data. Had average adjustments been used, August’s job gains might have been closer to +117,000. Also, we become somewhat concerned about the accuracy of the headline number whenever the birth/death and/or seasonal adjustments are nearly the same magnitude as the initial value.

* As for industry details, Manufacturing gained 36,000 jobs in August. That result is consistent with to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a faster pace in August. Wood Products employment rose by 100 jobs; Paper and Paper Products: +1,100. Construction employment advanced by 28,000.

* For once, less than 1% (1,300) of August’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +800; Temporary Help Services: +100; Social Assistance: -3,600; and Leisure & Hospitality: +4,000. This is a persistent issue despite August’s better results, as we have repeatedly highlighted: There are 1.27 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 137,000 jobs YTD2017 while FS&D jobs have expanded by 212,500. 

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* The number of employment-age persons not in the labor force (NILF) advanced by 128,000 -- to 94.8 million. August’s NILF estimate remains within 0.4% of December 2016’s record high, however. Meanwhile, the employment-population ratio (EPR) decreased fractionally to 60.1%; 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) remained constant at 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.03, to $26.39, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $22.12 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour (to 34.4 hours), average weekly earnings decreased by $1.60, to $907.82 (+2.8% YoY). With the consumer price index running at an annual rate of 1.7% in July, workers are -- officially, at least -- holding steady in terms of purchasing power. 

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* Full-time jobs retreated by 166,000; there are now 3.9 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 22.2 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 27,000. Those holding multiple jobs dropped by 243,000. 

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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 August fell by $4.4 billion, to $190.4 billion (-2.3% MoM, and -1.3% 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 August was 5.6% 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.