January 2023 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added a “blowout” 517,000 jobs in January, far exceeding the 185,000 expected. In addition, November and December employment changes were revised up by a combined 71,000 (November: +34,000; December: +37,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 3.4%, as the number of unemployed appears to have declined while the labor force perhaps expanded. December - January changes in household data are not officially quantified due to the introduction of updated population controls.

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Observations from the employment reports include:

* As is the case every January, we once again caution against reading too much into this employment report. The BLS revised establishment survey data as part of the annual benchmarking process, the NAICS 2022 conversion (which caused approximately 10% of employment to be reclassified into different industries), and the updating of seasonal adjustment factors. Also, household survey data for January 2023 reflect updated population estimates. Revisions due to both the NAICS 2022 conversion and the benchmark process affected more historical data than is typical in the annual benchmark process. The NAICS revisions modified the entire history of affected industries for both seasonally and not seasonally adjusted data.

* Goods-producing industries added 46,000 jobs; service providers: +471,000. Job growth was widespread, led by gains in leisure and hospitality (+128,000), professional and business services (+82,000), and health care (+58,000). Employment also increased in government (+74,000), partially reflecting the return of workers from a strike. Total nonfarm employment (155.1 million) is now 2.7 million jobs above its pre-pandemic level in February 2020 (private sector: +3.2 million; public sector: -482,000). That said, employment is also perhaps nearly 5.9 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 19,000 jobs. That result may be consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which expanded -- albeit at a slower pace -- in January. Wood products manufacturing rose by 1,100 (ISM shrank); paper manufacturing: +800 (ISM shrank); construction: +25,000 (ISM was unchanged).

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* The number of employment-age persons not in the labor force rose (+252,000) to 100.1 million; that level is 5.0 million higher than in February 2020. The employment-population ratio (EPR) ticked up marginally to 60.2% -- still 0.9PP below its February 2020 level. 

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* With the labor force at 165.8 million, the labor force participation rate was 62.4%. Average hourly earnings of all private employees increased by $0.10 (to $33.03), and the year-over-year increase decelerated to +4.4%. Because the average workweek for all employees on private nonfarm payrolls expanded to 34.4 hours, average weekly earnings jumped (+$13.35) to $1,146.14 (+4.7% YoY). Nonetheless, with the consumer price index running at an annual rate of +6.5% in December, 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 ticked up (+278,000) at 132.6 million; there are now 1.8 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 6.3 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 -- rose by 172,000, while those working part time for non-economic reasons jumped (+455,000); multiple-job holders: -43,000. 

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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 fell by $51.8 billion, to $288.0 billion (-15.2% 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 January was 0.3% below the year-earlier average. Again, more time is needed to determine employment trends.

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.