September 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 134,000 jobs in September -- well below expectations of +180,000. However, combined July and August employment gains were revised up by 87,000 (July: +18,000; August: +69,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) dipped to 3.7% because the number of unemployed persons fell (-270,000) while the labor force expanded (+150,000). 

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Observations from the employment reports include:

* The household (420,000 more people employed) and establishment (+134,000 jobs) survey results were again out of sync. Given the disruptions from hurricane Florence, this outcome is not entirely unexpected.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that appears to have occurred in September. Imputed jobs from by the CES (business birth/death model) adjustment were the most negative for the month of September (since 2000), but the BLS also applied the smallest seasonal adjustment to the base data. Had average September adjustments been used, employment may have contracted by 87,000 instead of the reported +134,000.

* As for industry details, Manufacturing expanded by 18,000 jobs. That result is consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in September at a faster pace than in August. Wood Products employment gained 1,300 jobs (ISM was unchanged); Paper and Paper Products: +300 (ISM increased). Construction employment added 23,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) advanced by 74,000 (+0.1%), to a new record of 96.4 million. However, the employment-population ratio increased fractionally to 60.4%; thus, for every five people being added to the population, roughly three are employed. 

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* Similarly, the labor force participation rate (LFPR) was stable at 62.7% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.08, to $27.24, resulting in a 2.8% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.06, to $22.81 (+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 $2.76 (+0.3%), to $939.78 (+5.0% YoY). With the consumer price index running at an annual rate of 2.7% in August, workers may finally be gaining ground -- officially, at least -- in terms of purchasing power. 

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* Full-time jobs gained ground when rising by 317,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- also rose by 263,000; non-economic reasons: -317,000. Those holding multiple jobs fell by 237,000. 

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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 declined in September, by $13.3 billion (-7.0% MoM; -4.7% YoY), to $177.9 billion; it is difficult to conclude anything meaningful from the data beyond observing that the YoY drop occurred in the context of adverse weather, and 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 September was 1.8% 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.