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Friday, February 4, 2022

January 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added a 467,000 jobs in January (more than triple the 150,000 expected). In addition, as part of the BLS’s annual benchmark process, November and December employment changes were revised up by a combined 709,000 (November: +398,000; December: +311,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up fractionally, to 4.0%, as the number of people who found work (+1.199 million) lagged the number of (re)entrants to the civilian labor force (+1.393 million). 

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Observations from the employment reports include:

* There were numerous anomalies in the data. For example --

- The number of people who found work (+1.199 million) were 2.5 times the number of jobs created (+467,000).
- The seasonally adjusted jobs gain was +467,000 whereas the unadjusted data showed a loss of 2.7 million jobs.
- To achieve the reported headline jobs gain, the BLS deployed the largest seasonal adjustment ever for the month of January (+3.291 million).
- A significant proportion of the change in the number of employed persons (+1.199 million) derives from estimates of changes in population. If one controls for the population effect, the number of employed would have fallen by 272,000 rather than rising by 1.199 million.

* As reported, goods-producing industries added just 4,000 jobs; service-providers: +463,000. Employment growth continued in leisure and hospitality (+151,000), in professional and business services (+86,000), in retail trade (+61,000), and in transportation and warehousing (+54,200).

Manufacturing added 13,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded more rapidly in January. Wood Products employment rose by 2,000 (ISM was unchanged); Paper and Paper Products: +700 (ISM fell); Construction: -5,000 (ISM rose).

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* The number of employment-age persons not in the labor force tumbled (-326,000) to 99.5 million; that is 4.5 million higher than in February 2020. With the labor force expanding, the employment-population ratio (EPR) edged up to 59.7%, another pandemic high; even so, the EPR is 1.5PP below the February 2020 level. 

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* Because the civilian labor force expanded by 1.393 million in January, the labor force participation rate rose to 62.2%. Average hourly earnings of all private employees increased by $0.23 (to $31.63), and the year-over-year increase accelerated to +5.7%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.17, to $26.92 (+6.9% YoY). Since the average workweek for all employees on private nonfarm payrolls fell by 0.2 hour, to 34.5 hours, average weekly earnings rose (+$1.66) to $1,091.24 (+6.2% YoY). With the consumer price index running at an annual rate of +7.0% in December, the average worker continues to lose purchasing power.

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* Full-time jobs jumped (+973,000) to 131.2 million; with that increase, there are now 325,000 more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 3.6 million during that period. 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 -- retreated by 212,000, along with those working part time for non-economic reasons (-117,000); multiple-job holders rose by 91,000.

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For a “sanity test” of the job 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 dropped by $77.9 billion, to $273.2 billion (-22.2% MoM; +21.2% 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 30.1% above the year-earlier average. There has been disagreement in the past between the jobs and withholding-tax reports, but this is the second month of truly eye-catching disparities.

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.

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