January 2018 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 200,000 jobs in January -- above expectations of +176,000. However, November and December employment gains were revised down by 24,000 (November: -36,000; December: +12,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1%; benchmark and population adjustments applied to January’s household data rendered MoM comparisons meaningless. 

Click image for larger view

Observations from the employment reports include:

* Correspondence between the establishment and household survey results could not be determined in January because of the confounding introduced by updated population controls.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that appears to have been true again in January. Imputed jobs from by the CES (business birth/death model) adjustment were less negative than average for the month of January (since 2000); moreover, the BLS applied the largest seasonal adjustment for a January to the base data. Had average January adjustments been used, employment changes might have been roughly -199,000 instead of the reported +200,000.

* As for industry details, Manufacturing expanded by 15,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in January at a marginally slower pace than December. Wood Products employment gained 1,300 jobs (ISM was unchanged); Paper and Paper Products: -2,200 (ISM was unchanged). Construction employment jumped by 36,000 (ISM’s services report was unavailable at the time of this writing). 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) rose by 153,000 -- to a new record of 95.6 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. 

Click image for larger view

* 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 $26.74, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.03, to $22.34 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings decreased by $2.25, to $917.18 (+2.6% YoY). With the consumer price index running at an annual rate of 2.1% in December, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

Click image for larger view

* Full-time jobs jumped by 293,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 74,000. Those holding multiple jobs advanced by 198,000. 

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 increased in January, by $7.0 billion (+3.0% MoM; +8.9% YoY), to $237.4 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 January was 7.5% 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.