August 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 1.371 million jobs in August (+1.4 million expected). Also, June and July employment changes were revised down by a combined 39,000 (June: -10,000; July: -29,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-1.8 percentage points) to 8.4% because the increase in the number of employed (+3.76 million) far outstripped expansion of the labor force (+968,000).

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Observations from the employment reports include:

* Changes in the establishment (+1.371 million jobs) and household surveys (+3.756 million employed) were not well correlated.

* Goods-producing industries gained a relatively modest 43,000 jobs, while service-providing employment jumped by 1.328 million jobs) -- especially government (+344,000 -- predominantly temporary census workers), retail trade (+248,900), leisure and hospitality (+174,000), education and health services (+147,000), and temporary help services (+106,700). Manufacturing expanded by 29,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted more slowly in August. Wood Products employment advanced by 1,100 (ISM was unchanged); Paper and Paper Products: unchanged (ISM decreased); Construction: +16,000 (ISM unchanged).

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* The number of employment-age persons not in the labor force fell (783,000) to 99.7 million. As a result, the employment-population ratio (EPR) rose to 56.5%; 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 968,000 in August, the labor force participation rate advanced (+0.3 PP) to 61.7%. Average hourly earnings of all private employees gained $0.11 to $29.47, resulting in a 4.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.18, to $24.81 (+4.9% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (+0.1 hour) to 34.6 hours, average weekly earnings increased by $6.74, to $1,019.66 (+7.7% YoY). With the consumer price index running at an annual rate of +1.0% in July, whether consumers are keeping up with price inflation depends upon their employment status.

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* Full-time jobs jumped (+2.84 million), to 122.4 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 871,000 (presumably, in most cases returning to full-time work). Those working part time for non-economic reasons rose by 838,000 while multiple-job holders edged up by 182,000. Once again, the shrinkage in the number of temporarily unemployed (-3.065 million, to 6.160 million) could explain the majority (or all) of August’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 August fell by $8.6 billion, to $185.9 billion (-4.4% MoM; -3.9% 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 August was 4.7% 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.