October 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 638,000 jobs in October (600,000 expected). Also, August and September employment changes were revised up by a combined 15,000 (August: +4,000; September: +11,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell (-1.0 percentage point) to 6.9% as the number of persons finding employment (+2.243 million) was over three times the growth of the labor force (+724,000).

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Observations from the employment reports include:

* Changes in the establishment (+638,000 jobs) and household surveys (+2.243 million employed) were not well correlated.

* Goods-producing industries gained 123,000 jobs, while service-providing employment added a more robust 515,000 jobs -- especially leisure and hospitality (+271,000), professional and business services (+208,000), retail trade (+103,700), and construction (+84,000). Employment in government declined (-268,00) driven by a loss of 147,000 temporary 2020 Census workers. Manufacturing expanded by 38,000 jobs. That result is consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in October. Wood Products employment advanced by 4,400 (ISM increased); Paper and Paper Products: -1,500 (ISM decreased); Construction: +84,000 (ISM increased).

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* The number of employment-age persons not in the labor force receded (541,000) to 100.1 million. As a result, the employment-population ratio (EPR) rose to 57.4%; i.e., nearly six in 10 of the employment-age population is presently employed.

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* Because the civilian labor force expanded by 724,000 in October, the labor force participation rate advanced (+0.3 PP) to 61.7%. Average hourly earnings of all private employees gained $0.04 to $29.50, resulting in a 4.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.05, to $24.82 (+4.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.8 hours, average weekly earnings increased by $1.38, to $1,026.60 (+6.0% YoY). With the consumer price index running at an annual rate of +1.4% in September, whether consumers are keeping up with price inflation depends primarily upon whether or not they are working.

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* Full-time jobs jumped (+1.170 million) to 123.6 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 -- rose by 383,000, whereas those working part time for non-economic reasons advanced by 503,000; multiple-job holders also rose by 204,000. 

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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 October rose by $893 million, to $186.6 billion (+0.5% MoM; -5.6% 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 October was 5.9% below the year-earlier average. As we mentioned last month, President Trump’s executive order deferring certain payroll obligations through December 31, 2020 complicates comparisons with earlier data.

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.