October 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 128,000 jobs in October (+93,000 expected). Also, combined August and September employment gains were revised up by 95,000 (August: +51,000; September: +44,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 3.6% as expansion of the labor force (+325,000) outpaced growth in the number of employed persons (+241,000). 

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Observations from the employment reports include:

* The establishment (+128,000 jobs) and household survey results (+241,000 employed) were better correlated than usual in October. Had average (since 2009) October CES (business birth/death model) and seasonal adjustments been used, job gains might have been a more modest +83,000.

* Manufacturing shrank by 36,000 jobs in October. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a slower pace in October. Wood Products employment added 1,400 jobs (ISM unchanged); Paper and Paper Products: +600 (ISM decreased); Construction: +10,000 (ISM not yet published). 

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* The number of employment-age persons not in the labor force (NILF) was little changed (-118,000) at 95.5 million. This metric has leveled off since the latter half of 2018. Meanwhile, the employment-population ratio (EPR) was stable at 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 57% larger than that of the working-age civilian population, the labor force participation rate increased fractionally to 63.3%. Average hourly earnings of all private employees rose by $.0.06, to $28.18, resulting in a 3.0% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $23.70 (+3.5% 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 $969.39 (+2.7% YoY). With the consumer price index running at an annual rate of 1.7% in September, workers are maintaining purchasing power according to official metrics. 

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* Full-time jobs jumped by 451,000, 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 -- rose by 88,000. Those working part time for non-economic reasons declined by 24,000 while multiple-job holders fell by 199,000. 

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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 October decreased by $4.4 billion, to $197.7 billion (-2.2% MoM, +0.4% YoY and +4.0% 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 October was 5.1% 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.