June 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 372,000 jobs in June, well in excess of the 270,000 expected. However, April and May employment changes were revised down by a combined 74,000 (April: -68,000; May: -6,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was stable at 3.6%, as the change in the number of employed (-315,000) roughly matched the contraction of the civilian labor force (-353,000). Since the number of unemployed also shrank by 38,000 it appears the vast majority of people no longer working left the labor force entirely.

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Observations from the employment reports include:

* The correspondence between the establishment (+372,000 jobs) and household surveys (-315,000 employed) was poor.

* Goods-producing industries added 48,000 jobs; service-providers: +324,000. Notable job gains occurred in professional and business services (+74,000), leisure and hospitality (+67,000), and health care (+56,000). Losses were concentrated in credit intermediation and related activities -- e.g., banks, credit card firms and mortgage originators (-10,700), and the federal government (-13,000). Total nonfarm employment is down by 524,000 (-0.3%) from its pre-pandemic level in February 2020. Private-sector employment has recovered the net job losses due to the pandemic and is 140,000 higher than in February 2020, while government employment is 664,000 lower. Employment is also perhaps 8.1 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 29,000 jobs. That result is at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which fell further into contraction in June. Wood products employment retreated by 1,200 (ISM was unchanged); paper and paper products: +1,200 (ISM decreased); construction: +13,000 (ISM increased).

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* The number of employment-age persons not in the labor force jumped (+510,000) to 99.8 million; that level is 4.8 million higher than in February 2020. With the labor force contracting, the employment-population ratio (EPR) edged down to 59.9%; also, the EPR is 1.3PP below the February 2020 level. 

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* Because the civilian labor force shrank by 353,000 in June, the labor force participation rate decreased fractionally to 62.2%. Average hourly earnings of all private employees increased by $0.10 (to $32.08), and the year-over-year increase decelerated to +5.1%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.13, to $27.45 (+6.4% YoY). Since the average workweek for all employees on private nonfarm payrolls held at 34.5 hours, average weekly earnings rose (+$3.45) to $1,106.76 (+4.2% YoY). With the consumer price index running at an annual rate of +8.6% in May, the average worker keeps losing purchasing power. In fact, average hourly wages have lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs slipped (-152,000) to 132.6 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 -- slumped by 707,000, while those working part time for non-economic reasons also fell (-204,000); multiple-job holders rose by 239,000.

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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 June decreased by $4.4 billion, to $242.3 billion (-1.8% MoM; +0.5% 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 June was 9.3% above 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.