July 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 187,000 jobs in July (200,000 expected). May and June 2023 employment changes were revised down by a combined 49,000 (May: -25,000; June: -24,000); in fact, employment gains have now been revised lower for every historical month in 2023. Meanwhile, the unemployment rate (based upon the BLS’s household survey) slipped 0.1 percentage point (PP) to 3.5%, as the change in the number of employed (+268,000) again outpaced the expansion of the labor force (+152,000). 

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Observations from the employment reports include:

* Goods-producing industries added 18,000 jobs; service providers: +169,000. Industries with significant employment growth included health care (+63,000), social assistance (+24,100), financial activities (+19,000), and wholesale trade (+17,900). Total nonfarm employment (156.3 million) is now 4.0 million jobs above its pre-pandemic level in February 2020 (private sector: +4.1 million; public sector: -170,000). That said, employment is also perhaps 5.3 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing lost 2,000 jobs, led by nondurable goods (-10,000). That result agrees with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which contracted further (to 44.4) in July. Wood products manufacturing shed 1,700 jobs (ISM was unchanged); paper manufacturing: -700 (ISM increased); construction: +19,000 (ISM rose).

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* The number of employment-age persons not in the labor force edged up (+49,000) to nearly 99.9 million; that level is 4.7 million higher than in February 2020. Because growth in the number of employed (+268,000) outpaced working-age civilian population growth (+201,000), the employment-population ratio (EPR) ticked up to 60.4%, which is 0.7PP below its February 2020 level. 

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* With the working-age civilian population growing by 201,000 and labor force expanding by 152,000, the labor force participation rate remained at 62.6%. Average hourly earnings of all private employees nudged up by $0.14 (to $33.74), and the year-over-year increase accelerated to +5.1%. Despite the average workweek for all employees on private nonfarm payrolls contracting to 34.3 hours, average weekly earnings rose (+$1.44) to $1,157.28 (+5.7% YoY). With the consumer price index running at an annual rate of +3.0% in June, the average worker appears to have gained a bit of purchasing power. Average hourly wages have generally lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time workers fell (-585,000) to 134.3 million; there are now 3.5 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 7.4 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 191,000, while those working part time for non-economic reasons jumped (+704,000); multiple-job holders: +118,000. 

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For a “sanity test” of the job numbers, we consult employment withholding/FICA taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in July dipped by $3.2 billion, to $242.5 billion (-1.3% MoM; +6.3% 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 up 3.6% from 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.