February 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 273,000 jobs in February (+175,000 expected). Also, combined December and January employment gains were revised up by 85,000 (December: +37,000; January: +48,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down to 3.5% under a combination of a shrinking labor force (-60,000) and an increase in the number of employed persons (+45,000). 

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Observations from the employment reports include:

* The establishment (+273,000 jobs) and household survey results (+45,000 employed), although directionally consistent, were otherwise poorly correlated. Had average (since 2010) February CES (business birth/death model) and seasonal adjustments been used, job gains might have been a more sedate +178,000.

* Goods-producing industries added 61,000 jobs, while service-providing employment jumped by 212,000 (especially health care and social assistance, food services and drinking places, government, professional and technical services, and financial activities). Manufacturing expanded by 15,000 jobs. That result runs counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a slower pace in February. Wood Products employment dropped by 200 (ISM unchanged); Paper and Paper Products: -700 (ISM increased); Construction: +42,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) rose (+186,000) to 95.1 million. As a result, the employment-population ratio (EPR) eased back to 61.1%; roughly, then, for every five people being added to the working-age population, three are employed. 

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* Although the civilian labor force shrank by 60,000 in February, the labor force participation rate was unchanged at 63.4%. Average hourly earnings of all private employees rose by $0.09, to $28.52, resulting in a 3.0% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.08, to $23.96 (+3.3% YoY). Since the average workweek for all employees on private nonfarm payrolls edged up (+0.1 hour) to 34.4 hours, average weekly earnings increased by $5.94, to $981.09 (+4.9% YoY). With the consumer price index running at an annual rate of 2.5% in January, wage earners are gaining purchasing power according to official metrics. 

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* Full-time jobs barely budged (+10,000), 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 136,000. Those working part time for non-economic reasons advanced by 21,000 while multiple-job holders fell by 82,000. 

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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 February fell by $9.5 billion, to $222.9 billion (-4.1% MoM; +6.3% 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 February was 6.8% above the year-earlier average.

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.