January 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 225,000 jobs in January (+153,000 expected). Also, combined November and December employment gains were revised up by 7,000 (November: +5,000; December: +2,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up to 3.6%. 

Because January’s estimates reflect the annual benchmarking process and the updating of seasonal adjustment factors, comparison with December’s estimates is not statistically valid. The adjustments decreased the estimated size of the civilian noninstitutional population in December by 811,000, the civilian labor force by 524,000, employment by 507,000, and unemployment by 17,000. The number of persons not in the labor force was decreased by 287,000. 

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Despite the above caveat, observations from the employment reports include:

* Goods-producing industries added 32,000 jobs, while service-providing employment jumped by 193,000. Manufacturing shrank by 12,000 jobs. That result aligns with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a slower pace in January. Wood Products employment was unchanged(ISM increased); Paper and Paper Products: +400 (ISM unchanged); Construction: +44,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) tumbled (-729,000) to 94.9 million; a sizeable proportion of that decline is likely due to the above-mentioned revisions. As a result, the employment-population ratio (EPR) bumped up to 61.2% -- its highest level since November 2008; roughly, then, for every five people being added to the working-age population, three are employed. 

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* After accounting for the annual adjustments to the population controls, the civilian labor force rose by 574,000 in January, and the labor force participation rate edged up to 63.4%. Average hourly earnings of all private employees rose by $0.07, to $28.44, resulting in a 3.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.03, to $23.87 (+3.3% YoY). Although the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours, average weekly earnings increased by $2.40, to $975.49 (+2.5% YoY). With the consumer price index running at an annual rate of 2.3% in December, workers are “treading water” with regard to purchasing power according to official metrics. 

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* Full-time jobs retreated by 656,000, to 131.1 million. Workers 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 34,000. Those working part time for non-economic reasons rose by 22,000 while multiple-job holders jumped by 206,000. 

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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 January fell by $11.1 billion, to $232.4 billion (-4.6% MoM; +10.0% 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 January was 7.2% 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.