June 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 213,000 jobs in June -- above expectations of +190,000. In addition, combined April and May employment gains were revised up by 37,000 (April: +16,000; May: +21,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) advanced to 4.0% because the labor force expanded (+601,000) well in excess of employment gains (+102,000). 

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Observations from the employment reports include:

* Household and establishment survey results were at least directionally in sync.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors, but that does not appear to be the case in June. Although imputed jobs from by the CES (business birth/death model) adjustment were slightly above average for the month of June (since 2000), the BLS also applied a far more negative-than-average seasonal adjustment to the base data. Had average June adjustments been used, employment changes might have been roughly +317,000 instead of the reported +213,000.

* As for industry details, Manufacturing expanded by 36,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in June at a slower pace than in May. Wood Products employment gained 1,300 jobs (ISM was unchanged); Paper and Paper Products: +100 (ISM increased). Construction employment gained 13,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) fell by 413,000 (-0.4%), to 95.5 million (but remained within 0.4% of May’s record). Meanwhile, the employment-population ratio was stable at 60.4%; thus, for every five people being added to the population, roughly three are employed. 

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* The labor force participation rate (LFPR) ticked up to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.05, to $26.98, resulting in a 2.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.04, to $22.62 (+2.7% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $1.72 (+0.2%), to $930.81 (+3.4% YoY). With the consumer price index running at an annual rate of 2.8% in May, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

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* Full-time jobs lost ground in June when receding by 89,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work – dropped by 205,000; non-economic reasons: +209,000. Those holding multiple jobs jumped by 177,000. 

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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 decreased in June, by $1.2 billion (-0.6% MoM; -5.1% YoY), to $185.7 billion; it is difficult to conclude anything meaningful from the data beyond observing 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 June was 2.6% 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.