July 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added nearly 1.8 million jobs in July (+2.0 million expected). Also, May and June employment changes were revised up by a combined 17,000 (May: +26,000; June: -9,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-0.9 percentage point) to 10.2% under a combination of employment gains (+1.35 million) and contraction in the labor force (-62,000). 

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Observations from the employment reports include:

* The establishment (+1.763 million jobs) and household survey results (+1.350 million employed) were very highly correlated.

* Goods-producing industries gained a relatively paltry 39,000 jobs, while service-providing employment jumped by 1.724 million jobs) – especially leisure and hospitality (+592,000), government (+301,000), retail trade (+258,300), professional and business services (+170,000), other services (+149,000), and health care (+125,500). Manufacturing expanded by 26,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted more slowly in July. Wood Products employment retreated by 1,300 (ISM was unchanged); Paper and Paper Products: +2,300 (ISM decreased); Construction: +20,000 (ISM decreased).

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* The number of employment-age persons not in the labor force rose (230,000) to 100.5 million. As a result, the employment-population ratio (EPR) rose to 55.1%; i.e., a little more than half of the employment-age population is presently employed. 

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* Because the civilian labor force contracted by 62,000 in July, the labor force participation rate retreated (-0.1 PP) to 61.4%. Average hourly earnings of all private employees gained $0.07 to $29.39, resulting in a 4.8% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages dipped by $0.11, to $24.63 (+4.6% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank (-0.1 hour) to 34.5 hours, average weekly earnings decreased by $0.51, to $1,013.96 (+5.5% YoY). With the consumer price index running at an annual rate of +0.6% in June, whether consumers are keeping up with inflation depends upon their employment status.

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* Full-time jobs advanced (+591,000), to 119.5 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 -- fell by 619,000 (presumably, in most cases returning to full-time work). Those working part time for non-economic reasons jumped by 655,000 while multiple-job holders rose by 323,000. Interestingly, the shrinkage in the number of temporarily unemployed (-1.340 million, to 9.225 million) could explain the majority of July’s job gains.

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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 July rose by $5.3 billion, to $194.5 billion (+2.8% MoM; -7.8% 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 July was 8.5% 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.