June 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment added 4.8 million jobs in June (+3.0 million expected). Also, April and May employment changes were revised up by a combined 90,000 (April: -100,000; May: +190,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-2.2 percentage points) to 11.1% -- although the BLS acknowledged misclassification errors once again artificially lowered the rate -- as the number of employed persons (+4.9 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 (+4.8 million jobs) and household survey results (+4.9 million employed) were very highly correlated. 

* Goods-producing industries regained 504,000 jobs, while service-providing employment rocketed higher (+4.296 million jobs) -- especially leisure and hospitality (+2.088 million), retail trade (+739,800), and education and health services (+568,000). Manufacturing expanded by 356,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted much more slowly in June. Wood Products employment advanced by 5,200 (ISM was unchanged); Paper and Paper Products: +1,500 (ISM decreased); Construction: +158,000 (ISM not yet reported). 

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* The number of employment-age persons not in the labor force (NILF) fell (-1.5 million) to 100.3 million. As a result, the employment-population ratio (EPR) rose to 54.6%; i.e., a little more than half of the employment-age population is presently employed. 

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* Because the civilian labor force expanded by 1.7 million in June, the labor force participation rate rose (+0.7 PP) to 61.5%. Average hourly earnings of all private employees retreated by $0.35 to $29.37, resulting in a 5.0% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages dipped by $0.23, to $24.74 (+5.4% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank (-0.2 hour) to 34.5 hours, average weekly earnings decreased by $18.01, to $1,013.27 (+3.5% YoY). With the consumer price index running at an annual rate of +0.1% in May, one's opinion of whether wage earners are keeping up with inflation depends upon the choice of MoM or YoY comparisons. 

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* Full-time jobs advanced (+2.4 million), to 118.9 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 -- fell by 1.57 million (presumably, in most cases returning to full-time work). Those working part time for non-economic reasons jumped by 2.7 million, while multiple-job holders rose by 681,000. 

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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 June rose by $17.1 billion, to $189.2 billion (+9.9% MoM; -2.4% 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 10.8% 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.