May 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 75,000 jobs in May (+180,000 expected). Also, combined March and April employment gains were revised down by 75,000 (March: -36,000; April: -39,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) remained at 3.6% as the number of employed persons rose (+113,000) together with the civilian labor force (+176,000). 

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Observations from the employment reports include:

* For a change, the establishment (+75,000 jobs) and household survey results (+113,000 employed) were at least directionally in sync. The BLS may have “plumped” the headline number by a small amount; had average (since 2009) May CES (business birth/death model) and seasonal adjustments been used, job gains might have amounted to an even more abysmal +39,000.

* With those caveats in mind, Manufacturing gained 3,000 jobs in May. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a faster pace in May. Wood Products employment shrank by 1,800 jobs (ISM was unchanged); Paper and Paper Products: +300 (ISM increased); Construction: +4,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) edged down (-8,000) to 96.2 million. 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 it is reassuring to see hints this statistic may again be heading in the right direction. 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 growth in the labor force slightly exceeding that of the civilian population, the labor force participation rate was stable at 62.8. Average hourly earnings of all private employees increased by $0.06, to $27.83, resulting in a 3.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.07, to $23.38 (+3.4% YoY). Because the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings increased by $2.06, to $957.35 (+2.8% YoY). With the consumer price index running at an annual rate of 2.0% in April, workers’ purchasing power is -- by official metrics, at least -- reasonably stable. 

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* Full-time jobs retreated by 83,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- tumbled by 299,000; those working part time for non-economic reasons nudged up by 53,000 while multiple-job holders rose by 57,000. 

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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 May shrank by $10.5 billion, to $203.4 billion (-4.9% MoM, but +8.8% YoY). To reduce some of the monthly 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 May was 7.2% above the year-earlier average -- well off the peak of +13.8% set back in September 2013. Nearly 1½ years have 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.