August 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, the pace of growth in non-farm payroll employment slowed to 151,000 jobs, well below expectations of +185,000. Also, combined June and July employment gains were revised down by 1,000 (June: -21,000; July: +20,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) held steady at 4.9% despite growth of the labor force (+176,000) being nearly double the change in the number of people who found employment (+97,000). 

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Observations from the employment reports include:

* As we have stated in the past, we are somewhat skeptical of the jobs report whenever either imputed jobs from the CES (birth/death model) adjustment represent a substantial proportion of the headline number -- as was the case in August -- or seasonal adjustments “swamp” the reported total. The BLS applied larger-than-average (since 2000) CES and seasonal adjustments to the base data; had the average adjustments been applied, headline jobs gains would have been “in the neighborhood” of +110,000.

* Manufacturing lost 14,000 jobs in August. That result is consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which contracted further. Wood Products lost 100 jobs, while Paper and Paper Products employment rose by 700.

* Mining and logging shed 4,000 jobs, with 5,200 coming from support activities for mining (oil and gas extraction actually gained 800 jobs). Construction employment fell by 6,000.

* Over 83% (105,100) of August’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +15,100; Professional & Business Services: +22,000; Education & Health Services: +39,000; and Leisure & Hospitality: +29,000. This is a persistent issue, as we have repeatedly highlighted: There are nearly 1.5 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but over 1.7 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has lost 13,000 jobs since 2014 while FS&D jobs have expanded by 523,300. 

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* The employment-population ratio remained at 59.7 %; roughly speaking, for every five people added to the population, only three are employed. Meanwhile, the number of employment-age persons not in the labor force edged up by 58,000 -- to near 94.4 million. 

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* As a result of new and/or re-entrants to the labor force, the labor force participation rate (LFPR) also held steady at 62.8%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.03 (to $25.73), resulting in a 2.4% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.64 (+2.5% YoY). However, the average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour (to 34.3 hours), which caused average weekly earnings to drop from $884.08 to $882.54. 

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* Full-time jobs rose by 409,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- increased by 85,000. There are now 2.4 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by over 20.7 million). PTER employment, by contrast, stopped declining in October 2015 and has since been oscillating around 6 million. 

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For a “sanity check” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in August jumped by $15.4 billion, to $192.9 billion (a record for August); that is also +9.5% YoY. To reduce some of the 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 August was 2.9% above the year-earlier average, well off the peak of +13.8% set back in September 2013.

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.