September 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 136,000 jobs in September (+145,000 expected). Also, combined July and August employment gains were revised up by 45,000 (July: +7,000; August: 38,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell to 3.5% as growth in the number of employed persons (+391,000) was more than three times the expansion of the labor force (+117,000). 

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Observations from the employment reports include:

* The establishment (+136,000 jobs) and household survey results (+391,000 employed) were again misaligned. Had average (since 2009) September CES (business birth/death model) and seasonal adjustments been used, job gains might have been a truly abysmal -30,000. Interestingly, the seasonal adjustment factor for the month of September has been trending downward from 2009’s peak of 600,000. Hence, using the average seasonal adjustment of the prior decade likely overstates the BLS’s tweaking; also, the seasonal adjustment used in this report is nearly identical to September 2018’s factor.

* Manufacturing lost 2,000 jobs in September. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a faster pace in September. Wood Products employment added 1,200 jobs (ISM decreased); Paper and Paper Products: -600 (ISM decreased); Construction: +7,000 (ISM unchanged). 

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* The number of employment-age persons not in the labor force (NILF) was little changed (+89,000) at 95.6 million. This metric has leveled off since the latter half of 2018. Meanwhile, the employment-population ratio (EPR) inched up to 61.0% -- its highest level since December 2008; roughly, then, for every five people being added to the working-age population, three are employed. 

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* With growth in the labor force roughly half that of the working-age civilian population, the labor force participation rate was unchanged at 63.2%. Average hourly earnings of all private employees dropped a penny, to $28.09, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $23.65 (+3.5% YoY). Because the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings decreased by $0.34, to $966.30 (+2.6% YoY). With the consumer price index running at an annual rate of 1.7% in August, workers are maintaining purchasing power according to official metrics. 

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* Full-time jobs jumped by 305,000, to a new record. Those employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- slipped by -31,000. Those working part time for non-economic reasons dropped by 124,000 while multiple-job holders edged lower by 16,000. 

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For a “sanity test” 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 September rose by $8.6 billion, to $202.1 billion (+4.4% MoM, +13.6% YoY and +4.4% YTD). 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 September was 8.1% 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.