March 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment slumping by 701,000 jobs in March (-150,000 expected; forecasts ranged from +100,000 to -1.25 million). Also, combined January and February employment gains were revised down by 57,000 (January: -59,000; February: +2,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) jumped (+0.9PP, the largest rate increase since January 1975) to 4.4% under a combination of a shrinking labor force (-1.633 million) and a plummeting number of employed persons (-2.987 million). Because the BLS indicated that “the March survey reference periods for both surveys predated many coronavirus-related business and school closures that occurred in the second half of the month,” April’s jobs report will almost certainly be much worse. 

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Observations from the employment reports include:

* The establishment (-701,000 jobs) and household survey results (-2.987 million employed), although directionally consistent, were otherwise poorly correlated. 

* Goods-producing industries lost 54,000 jobs, while service-providing employment (-647,000 jobs) bore the brunt of the drop -- especially food services and drinking places (-417,000), health care and social assistance (-61,200), temporary help services (-49,500), and retail trade (-46,200). Manufacturing contracted by 18,000 jobs. That result is consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which fell at a faster pace in March. Wood Products employment retreated by 700 (ISM decreased); Paper and Paper Products: -200 (ISM unchanged); Construction: +29,000 (ISM decreased). 

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* The number of employment-age persons not in the labor force (NILF) jumped (+1.8 million) to 96.8 million. As a result, the employment-population ratio (EPR) dropped to 60.0%; roughly, then, for every five people being added to the working-age population, three are employed. 

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* Because the civilian labor force shrank by 1.6 million in March, the labor force participation rate fell (-0.7PP) to 62.7%. Average hourly earnings of all private employees rose by $0.11, to $28.62, resulting in a 3.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.10, to $24.07 (+3.4% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank (-0.2 hour) to 34.2 hours, average weekly earnings decreased by $1.94, to $978.80 (+4.0% YoY). With the consumer price index running at an annual rate of 2.3% in February, those wage earners who remain are gaining purchasing power according to official metrics. 

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* Full-time jobs tumbled (-1.8 million), to 129.3 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 -- jumped by 1.4 million; many in this category had been full-time workers. Those working part time for non-economic reasons slumped by 1.6 million, while multiple-job holders fell by 802,000. 

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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 March rose by $32.7 billion, to a record $255.6 billion (+14.7% MoM; +7.5% 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 March was 7.9% above the year-earlier average. We expect a much lower withholding number at the end of April.

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.