October 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 261,000 jobs in October -- well below expectations of +323,000. In addition, August and September employment gains were revised up by 90,000 (August: +39,000; September: +51,000, which turned the previously reported loss into a small gain). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 4.1% as contraction of the labor force (-765,000) greatly exceeded the drop in the number of persons employed (-484,000). 

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Observations from the employment reports include:

* The establishment (+261,000) and household (-484,000) survey results were extremely out of sync again in October.

* 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 October. Imputed jobs added by the CES (business birth/death model) adjustment were near the top of the range (91^st percentile) for the month of October (since 2000), but the BLS also tempered those gains with a very sizeable seasonal adjustment (94^th percentile) to the base data. Had average adjustments been used, October’s job gains might have been closer to 232,000. 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 expanded by 24,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in October at its third-fastest pace since June 2011. Wood Products employment gained 2,800 jobs (ISM was unchanged); Paper and Paper Products: -2,300 (disagrees with ISM). Construction employment advanced by 11,000 (agrees with ISM). A sizeable proportion of October’s private-sector job growth occurred in the Leisure & Hospitality sector (+106,000) -- especially bars and restaurants (+88,500). 

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* The number of employment-age persons not in the labor force (NILF) jumped by 968,000 -- to a new record of 95.4 million. Meanwhile, the employment-population ratio (EPR) decreased slightly, 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 exiting (or not entering) the labor force, the labor force participation rate (LFPR) tumbled by 0.4 percentage point, to 62.7% -- comparable to levels seen in the late-1970s. Perhaps as a result of the number of low-paid wait-staff jobs being rehired, average hourly earnings of all private employees declined by $0.01, to $26.53, resulting in a 2.4% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages ticked down by $0.01, to $22.22 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings decreased by $0.35, to $912.63 (+2.4% YoY). With the consumer price index running at an annual rate of 2.2% in September, workers are -- officially, at least -- holding steady in terms of purchasing power. 

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* Full-time jobs edged down by 23,000; there are now nearly 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 over 22.6 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 369,000. Those holding multiple jobs retreated by 178,000. 

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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 rebounded in October, by $8.6 billion, to a record $195.2 billion for that month of the year (+4.6% MoM; +6.8% 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 October was 3.3% 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.