November 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 228,000 jobs in November -- above expectations of +185,000. In addition, September and October employment gains were revised up by 3,000 (September: +20,000; October: -17,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1% despite expansion of the labor force (+148,000) greatly exceeding the rise in the number of persons employed (+57,000). 

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Observations from the employment reports include:

* The establishment (+228,000) and household (+57,000) survey results were out of sync again in November.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that does not appear to have been true in November. Imputed jobs from by the CES (business birth/death model) adjustment were very muted, and the BLS subtracted the largest seasonal adjustment to the base data for the month of November (since 2000). Had average adjustments been used, November’s job gains might have been closer to 362,000. 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 31,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in November at a marginally slower pace than October. Wood Products employment lost 700 jobs (ISM was unchanged); Paper and Paper Products: +1,800 (agrees with ISM). Construction employment jumped by 24,000 (agrees with ISM). For a change, three of the four industries with the largest job gains were not in the low-wage “bucket” -- Manufacturing, Professional & Business Services (27,300 jobs, excluding Temp Help), and Construction; still, Education & Health Services (a low-wage category) had the largest gain (54,000). 

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* The number of employment-age persons not in the labor force (NILF) edged up by 35,000 -- to a new record of 95.420 million. Meanwhile, the employment-population ratio decreased fractionally, to 60.1%; thus, for every five people being added to the population, only three are employed. 

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* Like the unemployment rate, the labor force participation rate (LFPR) was unchanged at 62.7% -- comparable to levels seen in the late-1970s. Despite the substantial proportion of job gains in higher wage categories, average hourly earnings of all private employees rose by a less-than expected $0.05, to $26.55, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.05, to $22.24 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls ticked up by 0.1 hour, to 34.5 hours, average weekly earnings increased by $4.38, to $915.98 (+3.1% YoY). With the consumer price index running at an annual rate of 2.0% in October, workers are -- officially, at least – appear to be holding steady in terms of purchasing power. 

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* Full-time jobs rose by 160,000; there are now over 4.5 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by almost 22.8 million. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- edged up by 25,000. Those holding multiple jobs advanced by 135,000. 

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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 retreated in November, by $4.4 billion (-2.2% MoM; +6.8% YoY), to $190.9 billion -- still a record for that month of the year. 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 November was 6.0% 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.