May 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment added 2.5 million jobs in May (-7.725 million expected). However, March and April employment changes were revised down by a combined 642,000 (March: -492,000; April: -150,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-1.4PP) to 13.3% as the number of employed persons (+3.8 million) expanded by a far wider margin than the labor force (+1.7 million). 

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Observations from the employment reports include:

* The establishment (+2.5 million jobs) and household survey results (+3.8 million employed) were at least directionally consistent.

* Goods-producing industries regained 669,000 jobs, while service-providing employment jumped (+2.425 million jobs) -- especially leisure and hospitality (+1.239 million), education and health services (+424,000), and retail trade (+367,800). Manufacturing expanded by 225,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted more slowly in May. Wood Products employment advanced by 3,000 (ISM decreased); Paper and Paper Products: -100 (ISM increased); Construction: +464,000 (ISM decreased). 

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* The number of employment-age persons not in the labor force (NILF) fell (-1.6 million) to 101.8 million. As a result, the employment-population ratio (EPR) rose to 52.8%; thus, a little over half of the people being added to the working-age population are finding work. 

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* Because the civilian labor force expanded by 1.7 million in May, the labor force participation rate rose (+0.6PP) to 60.8%. Average hourly earnings of all private employees retreated by $0.29 to $29.75, resulting in a 6.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages dipped by $0.14, to $25.00 (+6.7% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (+0.5 hour) to 34.7 hours, average weekly earnings increased by $4.96, to $1,032.33 (+7.7% YoY). With the consumer price index running at an annual rate of +0.3% in April, those wage earners who remain employed are gaining purchasing power according to official metrics. 

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* Full-time jobs advanced (+2.2 million), to 116.5 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 -- edged down by 254,000; many in this category had been full-time workers. Those working part time for non-economic reasons jumped by 2.0 million, while multiple-job holders rose by 147,000. 

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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 May fell by $10.5 billion, to $172.1 billion (-5.8% MoM; -15.4% 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 May was 7.5% below 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.