March 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 103,000 jobs in March -- below expectations of +167,000. Moreover, combined January and February employment gains were revised down by 50,000 (January: -63,000; February: +13,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1% despite the shrinkage in the labor force (-158,000) overwhelming the decline in those employed (-37,000). 

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Observations from the employment reports include:

* The household and establishment surveys were not in sync, but as one analyst put it, “Compared to February's employment situation, which had no bad dynamics,…it was hard to find any rays of sunshine in this report. However, like most other data [series], there are good months and bad months -- and the year-to-date employment growth is nearly the same as last year.”

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors, and the March numbers seem to be a case in point. Although imputed jobs from by the CES (business birth/death model) adjustment were below average for the month of March (since 2000), the BLS also applied the smallest seasonal adjustment for a March to the base data. Had average March adjustments been used, employment changes might have been roughly +40,000 instead of the reported +103,000.

* As for industry details, Manufacturing expanded by 22,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in March at a slower pace than February. Wood Products employment gained 800 jobs (ISM was unchanged); Paper and Paper Products: -1,000 (ISM increased). Construction employment dropped by 15,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) rose by 323,000 (+0.3%), to 95.3 million. Meanwhile, the employment-population ratio remained unchanged at 60.4%; thus, for every five people being added to the population, roughly three are employed. 

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* Unlike the unemployment rate, the labor force participation rate (LFPR) slipped to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.08, to $26.82, resulting in a 2.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.04, to $22.42 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $2.76, to $925.29 (+3.1% YoY). With the consumer price index running at an annual rate of 2.2% in February, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

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* Full-time jobs fell by 311,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slid by 141,000. Those holding multiple jobs retreated by 255,000. Interestingly, part-time employment for noneconomic reasons jumped by 338,000. 

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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 increased in March, by $28.7 billion (+14.3% MoM; -2.3% YoY), to $229.4 billion; it is difficult to conclude anything meaningful from the data, however, because of confounding from the number of workdays and revised withholding rates stemming from the Tax Cuts and Jobs Act of 2017. 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 March was 1.7% 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.