December 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 148,000 jobs in December -- well below expectations of +190,000. In addition, October and November employment gains were revised down by 9,000 (October: -33,000; November: +14,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1% despite job gains (+104,000) exceeding expansion of the labor force (+96,000). 

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Observations from the employment reports include:

* The establishment (+148,000) and household (+104,000) survey results were in reasonable agreement in December.

* 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 December. Imputed jobs from by the CES (business birth/death model) adjustment were the most negative for the month of December (since 2000), and the BLS applied a very mid-range seasonal adjustment to the base data. Had average December adjustments been used, job gains might have been roughly +183,000.

* As for industry details, Manufacturing expanded by 25,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in December at a marginally slower pace than November. Wood Products employment regained the 700 jobs lost in November (ISM was unchanged); Paper and Paper Products: -1,000 (disagrees with ISM). Construction employment jumped by 30,000 (agrees with ISM). 

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* The number of employment-age persons not in the labor force (NILF) jumped up by 96,000 -- to a new record of 95.512 million. Meanwhile, the employment-population ratio was unchanged at 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. Average hourly earnings of all private employees rose by $0.09, to $26.63, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.07, to $22.30 (+2.3% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $3.11, to $918.74 (+2.8% YoY). With the consumer price index running at an annual rate of 2.2% in November, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

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* Full-time jobs fell by -35,000; there are now over 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 just under 23.0 million. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- advanced by 64,000. Those holding multiple jobs jumped by 305,000. 

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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 jumped in December, by $39.5 billion (+20.7% MoM; +6.6% YoY), to $230.4 billion -- 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 December was 6.7% 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.