November 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment in November rose by 155,000 jobs -- well below expectations of +190,000. Combined September and October employment gains were revised lower (September: -13,000; October: +1,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) remained at 3.7% because the number of those who found employment (+233,000) exceeded new/re-entrants to the labor force (+100,000). 

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Observations from the employment reports include:

* The household (233,000 more people employed) and establishment (+155,000 jobs) survey results were at least directionally consistent, if again somewhat out of sync.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that does not appear to have occurred in November. Imputed jobs from by the CES (business birth/death model) adjustment were below average for the month of November (since 2000), and the BLS subtracted an above-average seasonal adjustment from the base data. Had average November adjustments been used, employment may have been a more-sprightly +295,000 instead of the reported +155,000.

* As for industry details, Manufacturing expanded by 27,000 jobs. That result is consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in November at a faster pace than in October. Wood Products employment gained 700 jobs (ISM was unchanged); Paper and Paper Products: +700 (ISM increased). Construction employment added 5,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) advanced by 60,000 (+0.1%), to 95.9 million. The employment-population ratio was unchanged at 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) remained at 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.06, to $27.35, resulting in a 3.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.07, to $22.95 (+3.2% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour (to 34.4 hours), average weekly earnings decreased by $0.67 (-0.1%), to $940.84 (+3.1% YoY). With the consumer price index running at an annual rate of 2.5% in October, workers are gaining a bit of ground -- officially, at least -- in terms of purchasing power. 

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* Full-time jobs increased (543,000). Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 181,000; non-economic reasons: -604,000. Those holding multiple jobs: -142,000. 

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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 fell in November, by $10.8 billion (-5.5% MoM; -2.5% YoY), to $186.2 billion. 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 November was 2.1% 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.