July 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 528,000 jobs in July, which “blew past” the 258,000 expected. Moreover, May and June employment changes were revised up by a combined 28,000 (May: +2,000; June: +26,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down by 0.1 percentage point, to 3.5%, as the change in the number of employed (+179,000) compounded the effect of contraction in the civilian labor force (-63,000). Since the number of unemployed also shrank by 242,000 it appears most people no longer working left the labor force entirely.

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Observations from the employment reports include:

* The correspondence between the establishment (+528,000 jobs) and household surveys (+175,000 employed) was poor.

* Goods-producing industries added 68,000 jobs; service-providers: +459,000. Job growth was widespread in July, led by gains in leisure and hospitality (+96,000), professional and business services (+89,000), and health care (+69,600). Total nonfarm employment (152.5 million) is now back on par with its pre-pandemic level in February 2020. Private-sector employment has recovered the net job losses due to the pandemic and is 629,000 higher than in February 2020, while government employment is 597,000 lower. Employment is also perhaps 7.6 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 30,000 jobs. That result may be at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which contracted -- albeit more slowly -- in July. Wood products employment expanded by 200 (ISM was unchanged); paper and paper products: -1,200 (ISM fell); construction: +32,000 (ISM rose).

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* The number of employment-age persons not in the labor force rose (+239,000) to 100.1 million; that level is 5.0 million higher than in February 2020. Despite the labor force contracting, the employment-population ratio (EPR) edged up to 59.9%; also, the EPR is 1.2PP below the February 2020 level. 

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* Because the civilian labor force shrank by 63,000 in July, the labor force participation rate decreased fractionally to 62.1%. Average hourly earnings of all private employees increased by $0.15 (to $32.27), and the year-over-year increase was unchanged +5.2%. Since the average workweek for all employees on private nonfarm payrolls held at 34.6 hours, average weekly earnings rose (+$5.19) to $1,116.54 (+4.7% YoY). With the consumer price index running at an annual rate of +9.1% in June, 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 (-71,000) 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 -- rose by 303,000, while those working part time for non-economic reasons jumped (+501,000); multiple-job holders: +92,000.

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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 July decreased by $14.1 billion, to $228.2 billion (-5.8% MoM; +5.4% 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 July was 7.3% 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.