January 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising at a “blistering” pace of 304,000 jobs in January -- nearly double expectations of +158,000. However, combined November and December employment gains were revised down by 70,000 (November: +20,000; December: -90,000, the largest monthly revision since 2010). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up to 4.0% under the influence of new/re-entrants to the labor force and impacts on non-government employment stemming from the partial government shutdown. 

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Observations from the employment reports include:

* While welcoming the apparent strength of the employment report, we caution -- as we do each February -- against drawing too many inferences from the data. As explained by the BLS, “Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2019 reflect updated population estimates.” The “knock-on” effects of some federal workers being furloughed during much of January further confounded the survey results; hence, at least another month may be necessary before trends become discernable.

* With those caveats in mind, Manufacturing gained 13,000 jobs in January. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded -- albeit at a slower pace in January. Wood Products employment grew by 3,100 jobs (ISM declined); Paper and Paper Products: -1,700 (ISM increased); Construction: +52,000 (ISM not yet published). 

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* The number of employment-age persons not in the labor force (NILF) retreated by 639,000 -- to 95.0 million. This metric has been trending lower since August as more potential workers conclude their prospects are improving and (re)enter the workforce. Meanwhile, the employment-population ratio (EPR) rose fractionally to 60.7%; roughly, then, for every five people being added to the population, three are employed. 

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* Similarly, given the number of people (re)entering the labor force, the labor force participation rate bumped up to 63.2% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.03, to $27.56, resulting in a 3.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.03, to $23.12 (+3.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $1.03, to $950.82 (+3.2% YoY). With the consumer price index running at an annual rate of 1.9% in December, workers are -- by official metrics, at least -- gaining purchasing power. 

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* Full-time jobs retreated by 76,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- jumped by 490,000; nearly all of this increase occurred in the private sector and according to the report, "reflects the impact of the partial federal government shutdown." Those working part time for non-economic reasons fell by 285,000 while multiple-job holders slid by 16,000. 

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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 in January dropped by $22.6 billion, to $211.4 billion (-9.7% MoM, and -11.0% YoY). 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 January was 3.9% below the year-earlier average -- well off the peak of +13.8% set back in September 2013. Although a full year has now passed with the lower withholding rates from the Tax Cuts and Jobs Act of 2017, the partial federal government shutdown may have affected amounts withheld in January.

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.