July 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 164,000 jobs in June (+156,000 expected). However, combined May and June employment gains were revised down by 41,000 (May: -10,000; June: -31,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 3.7% despite expansion of the working-age labor force (+370,000) exceeding growth in the number of employed persons (+283,000). 

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Observations from the employment reports include:

* The establishment (+164,000 jobs) and household survey results (+283,000 employed) were reasonably correlated. Also, the BLS’s headline estimate does not show significant bias; had average (since 2009) July CES (business birth/death model) and seasonal adjustments been used, job gains might have been bumped to +171,000.

* Manufacturing shed 16,000 jobs in July. That result seems to run counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a slower pace in July. Wood Products employment rose by 500 jobs (ISM was unchanged); Paper and Paper Products: +700 (ISM increased); Construction: +4,000 (ISM unreported). 

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* The number of employment-age persons not in the labor force (NILF) fell (-183,000) to 95.9 million. This metric seems to have leveled off since the latter half of 2018. Meanwhile, the employment-population ratio (EPR) inched up to 60.7%; roughly, then, for every five people being added to the working-age population, three are employed. 

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* With absolute growth in the labor force nearly double that of the civilian population, the labor force participation rate rose fractionally to 63.0%. Average hourly earnings of all private employees increased by $0.08, to $27.98, resulting in a 3.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $23.46 (+3.3% YoY). Because the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour (to 34.3 hours), average weekly earnings decreased by $0.05, to $959.71 (+0.8% YoY). With the consumer price index running at an annual rate of 1.6% in June, how well workers are maintaining purchasing power depends upon which metric one chooses for comparison. 

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* Full-time jobs jumped by 281,000, to a new record. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slumped by 363,000. Those working part time for non-economic reasons fell by 87,000 while multiple-job holders spiked by 233,000. 

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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 July rose by $17.1 billion, to $210.1 billion (+8.8% MoM, and +9.6% 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 July was 7.6% above 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.