January 2021 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added a “meager” 49,000 jobs in January (+50,000 expected). November and December employment changes were revised down by a combined 159,000 (November: -72,000; December: -87,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) declined by 0.4 percentage point (to 6.3%) due largely to people abandoning job searches and thereby dropping out of the labor force. 

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Observations from the employment reports include:

* Changes in the establishment (+49,000 jobs) and household surveys (+201,000 employed -- although the BLS cautions against making MoM comparisons between December and January because of the annual benchmarking process) were not well correlated. 

* Goods-producing industries gave up 4,000 jobs, while service-providing employment added 53,000 positions. Notable job gains in professional and business services (+97,000), temporary help services (+80,900) and in both public (+85,500) and private (+33,900) education were offset by losses in leisure and hospitality (-61,000), in retail trade (-37,800), in health care (-40,800), and in transportation and warehousing (-27,800). Manufacturing contracted by 10,000 jobs. That result is somewhat inconsistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which rose faster in January. Wood Products employment ticked up by 1,300 (ISM was rose); Paper and Paper Products: -400 (ISM declined); Construction: -3,000 (ISM increased).

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* The number of employment-age persons not in the labor force rose (27,000) to 100.7 million. As a result, the employment-population ratio (EPR) ticked up to 57.5%; i.e., nearly six in 10 of the employment-age population are presently employed. 

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* Because the civilian labor force likely declined by roughly 400,000 in January, the labor force participation rate also nudged down to 61.4%. Meanwhile, average hourly earnings of all private employees rose by $0.06 to $29.96, resulting in a 5.4% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.03, to $25.18 (+5.4% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded by 0.3 hour, average weekly earnings increased by $11.07, to $1,048.60 (+7.5% YoY). With the consumer price index running at an annual rate of +1.4% in December, whether consumers are keeping up with price inflation depends primarily upon whether or not they are working.

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* Full-time jobs rose (+301,000) to 125.0 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 -- dropped by 216,000, whereas those working part time for non-economic reasons rose by 282,000; multiple-job holders advanced by 163,000. 

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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 January declined by $21.7 billion, to $225.3 billion (-8.8% MoM; -3.1% 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 January was 1.5% below the year-earlier average. We expected withholding to jump, given the expiration of former-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.