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Friday, May 3, 2019

April 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 263,000 jobs in April (+180,000 expected). Also, combined February and March employment gains were revised up by 16,000 (February: +23,000; March: -7,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) dropped to 3.6% -- primarily because the number of employed persons shrank far less (-103,000) than the overall civilian labor force (-490,000). 
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Observations from the employment reports include:
* The disparity between the establishment (+263,000 jobs) and household survey results (-103,000 employed) makes us somewhat skeptical of the headline number. Also, had average (since 2009) March CES (business birth/death model) and seasonal adjustments been used, job gains might have amounted to +212,000.
* With those caveats in mind, Manufacturing gained 4,000 jobs in April. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a slower pace in April. Wood Products employment shrank by 1,400 jobs (ISM decreased); Paper and Paper Products: -1,600 (ISM increased); Construction: +33,000 (ISM increased). 
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* The number of employment-age persons not in the labor force (NILF) jumped to 96.2 million (+646,000). This metric had been trending lower since August 2018 -- presumably, as more potential workers concluded their prospects were improving and (re)entered the workforce -- so the sharp increase in this statistic is somewhat disconcerting. Meanwhile, the employment-population ratio (EPR) was unchanged at 60.6%; roughly, then, for every five people being added to the population, three are employed. 
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* With so many people leaving the labor force, the labor force participation rate dropped to 62.8% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.06, to $27.77, resulting in a 3.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.07, to $23.31 (+3.4% YoY). Because the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour (to 34.4 hours), average weekly earnings decreased by $0.71, to $955.29 (+1.0% YoY). With the consumer price index running at an annual rate of 1.9% in March, workers’ purchasing power is -- by official metrics, at least -- reasonably stable. 
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* Full-time jobs retreated by 191,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 155,000. Those working part time for non-economic reasons nudged up by 25,000 while multiple-job holders fell by 55,000. 
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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 April shrank by $23.8 billion, to $213.8 billion (-10.0% MoM, but +9.3% 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 April was 5.8% above the year-earlier average -- well off the peak of +13.8% set back in September 2013. More than a full year has now passed with the lower withholding rates from the Tax Cuts and Jobs Act of 2017, and the lagged effects of the partial federal government shutdown should have effectively disappeared.
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.

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