September 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 661,000 jobs in September (+894,000 expected). Also, July and August employment changes were revised up by a combined 145,000 (July: +27,000; August: +118,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-0.5 percentage point) to 7.9% under a combination of rising employment (+275,000) and shrinking labor force (-695,000).

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Observations from the employment reports include:

* Changes in the establishment (+661,000 jobs) and household surveys (+275,000 employed) were not well correlated. 

* Goods-producing industries gained 93,000 jobs, while service-providing employment added a more robust 568,000 jobs -- especially leisure and hospitality (+318,000), retail trade (+142,000), health care and social assistance (+107,000) , and in professional and business services (+89,000). Public-sector employment declined, mainly in state and local government education (-231,100). Manufacturing expanded by 66,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which nearly ceased contracting in September. Wood Products employment advanced by 3,900 (ISM was unchanged); Paper and Paper Products: +3,000 (ISM increased); Construction: +26,000 (ISM not yet reported).

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* The number of employment-age persons not in the labor force rose (879,000) to 100.6 million. Even so, the employment-population ratio (EPR) inched up to 56.6%; i.e., a little more than half of the employment-age population is presently employed.

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* Because the civilian labor force contracted by 695,000 in September, the labor force participation rate retreated (-0.3 PP) to 61.4%. Average hourly earnings of all private employees gained $0.02 to $29.47, resulting in a 4.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.01, to $24.79 (+4.6% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (+0.1 hour) to 34.7 hours, average weekly earnings increased by $3.64, to $1,022.61 (+3.1% YoY). With the consumer price index running at an annual rate of +1.3% in August, whether consumers are keeping up with price inflation depends upon their employment status.

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* Full-time jobs were essentially unchanged (+54,000) at 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 1.272 million, whereas those working part time for non-economic reasons rose by 288,000; multiple-job holders declined by 339,000. Once again, the shrinkage in the number of temporarily unemployed (-1.523 million, to 4.637 million) could explain the majority (or all) of September’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 September edged down by $159 million, to $185.7 billion (-0.1% MoM; -8.1% 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 September was 6.6% below the year-earlier average. The fall-off in taxes withheld may be explained by President Trump’s executive order deferring certain payroll obligations through December 31, 2020.

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.