September 2017 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment declined by 33,000 jobs in September -- well below expectations of +95,000. In addition, combined July and August employment gains were revised down by 38,000 (July: -51,000; August: +13,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) dropped to 4.2% as growth in the number of persons employed (+906,000) greatly exceeded expansion of the labor force (+575,000). 

Click image for larger view

Observations from the employment reports include:

* The establishment (-33,000) and household (+906,000) surveys were extremely out of sync in September. This has generally been attributed to the widespread impacts of hurricanes Harvey and Irma (Maria was not a factor in this report since the surveys exclude Puerto Rico and the U.S. Virgin Islands). It is worth noting that differences in definitions and methods likely compounded the disparity. In the establishment survey, employees who are not paid for the pay period that includes the 12th of the month are not counted as employed. In the household survey, persons with a job are counted as employed even if they miss work for the entire survey reference week (the week including the 12th of the month), regardless of whether or not they are paid.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that may have been the case in September. Imputed jobs from the CES (business birth/death model) adjustment were near the bottom of the range for the month of September (since 2000), but the BLS also applied a very modest seasonal adjustment to the base data. Had average adjustments been used, September’s job losses might have exceeded 100,000. 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 shrank by 1,000 jobs. That result disagrees with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in September at its fastest pace since June 2011. Wood Products employment lost 1,500 jobs (also countering ISM); Paper and Paper Products: -600 (also countering ISM). Construction employment advanced by 8,000 (agreeing with ISM). The vast majority of September’s private-sector job growth occurred in the Leisure & Hospitality sector (-111,000) -- especially bars and restaurants (-104,700). 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) retreated by 368,000 -- to 94.4 million. Meanwhile, the employment-population ratio (EPR) increased slightly, to 60.4%; 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 by 0.2 percentage point, to 63.1% -- comparable to levels seen in the late-1970s. Perhaps as a result of so many low-paid wait-staff jobs being lost, average hourly earnings of all private employees jumped by $0.12, to $26.55, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.09, to $22.23 (+2.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings increased by $4.12, to $913.32 (+2.9% YoY). With the consumer price index running at an annual rate of 1.9% in August, workers are -- officially, at least -- holding steady in terms of purchasing power. 

Click image for larger view

* Full-time jobs jumped by 935,000; there are now 4.8 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 22.4 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 133,000. Those holding multiple jobs inched up by 20,000. 

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 September fell for a fourth consecutive month, by $3.8 billion, to $186.6 billion (-2.0% MoM, but +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 September was 4.3% 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.