February 2018 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 313,000 jobs in February -- considerably above expectations of +205,000. Moreover, December and January employment gains were revised up by 54,000 (December: +15,000; January: +39,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1% as expansion in the labor force (+806,000) was roughly balanced by the number of persons finding jobs (+785,000). 

Click image for larger view

Observations from the employment reports include:

* The household and establishment surveys were not in sync, but as one analyst put it, “you have a choice between great and even better” headline numbers.

* 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 February. Although imputed jobs from by the CES (business birth/death model) adjustment were above average for the month of February (since 2000); howeer, the BLS applied the largest seasonal adjustment for a February to the base data. Had average February adjustments been used, employment changes might have been roughly +579,000 instead of the reported +313,000.

* As for industry details, Manufacturing expanded by 31,000 jobs. That result is consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in February at a faster pace than January. Wood Products employment gained 3,300 jobs (ISM was unchanged); Paper and Paper Products: +800 (ISM was unchanged). Construction employment jumped by 61,000 (ISM increased). 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) fell by 653,000 (-0.7%) -- the third-largest monthly drop on record -- to 95.0 million. Meanwhile, the employment-population ratio edged up by 0.3 percentage point, to 60.4%; thus, for every five people being added to the population, roughly three are employed. 

Click image for larger view

* Unlike the unemployment rate, the labor force participation rate (LFPR) rose to 63.0% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.04, to $26.75, resulting in a 2.6% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.06, to $22.40 (+2.5% YoY). Since the average workweek for all employees on private nonfarm payrolls lengthened (+0.1 hr) to 34.5 hours, average weekly earnings increased by $4.06, to $922.88 (+2.9% YoY). With the consumer price index running at an annual rate of 2.1% in January, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

Click image for larger view

* Full-time jobs jumped by 729,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 171,000. Those holding multiple jobs advanced by 19,000. 

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 decreased in February, by $36.7 billion (-15.5% MoM; -1.5% YoY), to $200.7 billion; on a workday-adjusted basis, withholding fell by 11.2% MoM. 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 February was 4.7% 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.