April 2018 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 164,000 jobs in April -- below expectations of +188,000. However, combined February and March employment gains were revised up by 30,000 (February: -2,000; March: +32,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell to 3.9% because of minor employment gains (+3,000) in a contracting labor force (-236,000). 

Click image for larger view

Observations from the employment reports include:

* The household and establishment surveys were out of sync. As one analyst put it, “…if you believe the establishment survey's employment growth, then it is hard to believe the unemployment rate.”

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors, and the April numbers may be a case in point. Imputed jobs from by the CES (business birth/death model) adjustment were within 4% of the maximum for the month of April (since 2000), but the BLS also applied a slightly more negative-than-average seasonal adjustment to the base data. Had average April adjustments been used, employment changes might have been roughly +116,000 instead of the reported +164,000.

* As for industry details, Manufacturing expanded by 24,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in April at a slower pace than March. Wood Products employment lost 700 jobs (ISM was unchanged); Paper and Paper Products: -300 (ISM increased). Construction employment gained 17,000 (ISM increased). 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) rose by 410,000 (+0.4%), to a near-record 95.7 million. Meanwhile, the employment-population ratio ticked down to 60.1%; thus, for every five people being added to the population, roughly three are employed. 

Click image for larger view

* The labor force participation rate (LFPR) slipped to 62.8% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.04, to $26.84, resulting in a 2.6% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.05, to $22.51 (+2.6% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $1.39 (+0.1%), to $925.98 (+3.2% YoY). With the consumer price index running at an annual rate of 2.4% in March, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

Click image for larger view

* Full-time jobs recouped the ground lost in March, rising by 319,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slid by 34,000; non-economic reasons: -141,000. Those holding multiple jobs advanced by 58,000. 

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 April, by $33.7 billion (-14.7% MoM; +2.7% YoY), to $195.7 billion; it is difficult to conclude anything meaningful from the data beyond speculating that the falloff reflects lower withholding rates 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 April was 0.4% below 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.