October 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 250,000 jobs in October -- well above expectations of +190,000. Combined August and September employment gains were unchanged (August: +16,000; September: -16,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) remained at 3.7% because most (+600,000) of the new/re-entrants to the labor force (+711,000) found employment. 

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Observations from the employment reports include:

* The household (600,000 more people employed) and establishment (+250,000 jobs) survey results were at least directionally consistent, but again somewhat out of sync. Given the fact that employees returned to work in October after the disruptions from September’s hurricane Florence, this outcome is not entirely unexpected. Moreover, the BLS stated “hurricane Michael had no discernible effect on the national employment and unemployment estimates for October.”

* 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 October. Imputed jobs from by the CES (business birth/death model) adjustment were near the maximum for the month of October (since 2000), but the BLS also subtracted an above-average seasonal adjustment from the base data. Had average October adjustments been used, employment may have been a still-respectable +186,000 instead of the reported +250,000.

* As for industry details, Manufacturing expanded by 32,000 jobs, the largest MoM increase since December 2017. That result is somewhat consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in October -- albeit at a slower pace than in September. Wood Products employment gained 1,300 jobs (ISM was unchanged); Paper and Paper Products: -700 (ISM increased). Construction employment added 30,000 (ISM not yet reported). 

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* The number of employment-age persons not in the labor force (NILF) retreated by 487,000 (-0.5%), to 95.9 million. As a result, the employment-population ratio increased fractionally to 60.6%; 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) rose to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.05, to $27.30, resulting in a 3.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.07, to $22.89 (+3.2% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded by 0.1 hour (to 34.5 hours), average weekly earnings increased by $4.45 (+0.5%), to $941.85 (+1.2% YoY). With the consumer price index running at an annual rate of 2.3% in September, workers are still losing ground -- officially, at least -- in terms of purchasing power. 

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* Full-time jobs gained ground (318,000). Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slid by 21,000; non-economic reasons: +48,000. Those holding multiple jobs: +176,000. 

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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 rose in October, by $19.1 billion (+10.7% MoM; +0.9% YoY), to $197.0 billion; it is difficult to conclude anything meaningful from the data beyond observing that the increase occurred in the aftermath 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 October was 1.1% 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.