February 2019 Employment Report

Click image for larger view

The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by a “meager” 20,000 jobs in February -- a mere fraction of the +178,000 expected. However, combined December 2018 and January 2019 employment gains were revised up by 12,000 (December: +5,000; January: +7,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) retreated to 3.8% as employment gains (+255,000) occurred in the midst of a shrinking civilian labor force (-45,000). 

Click image for larger view

Observations from the employment reports include:

* Just as we were skeptical of January’s outsized jobs gains, which were confounded by a variety of statistical modifications (e.g., annual benchmarking, and updated seasonal adjustments and population estimates) and transitory events (i.e., the partial federal government shutdown), so too are we skeptical of this estimate. We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors, but February’s estimate seems to exhibit the opposite issue. Had average (since 2009) February CES (business birth/death model) and seasonal adjustments been used, job gains might have amounted to a more-respectable +143,000.

* With those caveats in mind, Manufacturing gained 4,000 jobs in February. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded -- albeit at a slower pace in February. Wood Products employment grew by 2,200 jobs (ISM declined); Paper and Paper Products: -100 (ISM was unchanged); Construction: -31,000 (ISM increased). 

Click image for larger view

* The number of employment-age persons not in the labor force (NILF) expanded by 198,000 -- to 95.2 million. This metric has been trending lower since August as more potential workers conclude their prospects are improving and (re)enter the workforce. Meanwhile, the employment-population ratio (EPR) was stable at 60.7%; roughly, then, for every five people being added to the population, three are employed. 

Click image for larger view

* Similarly, the labor force participation rate was unchanged at 63.2% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.11, to $27.65, resulting in a 3.4% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.08, to $23.18 (+3.5% YoY). Although the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour (to 34.4 hours), average weekly earnings increased by $1.02, to $951.50 (+2.9% YoY). With the consumer price index running at an annual rate of 1.6% in January, workers are -- by official metrics, at least -- gaining purchasing power. 

Click image for larger view

* Full-time jobs advanced by 322,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- slumped by 837,000; as was true last month, “this decline reflects, in part, the return of federal workers who were furloughed in January due to the partial government shutdown." Those working part time for non-economic reasons jumped by 204,000 while multiple-job holders retreated by 209,000. 

Click image for larger view

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 February dropped by $1.6 billion, to $209.8 billion (-0.8% MoM, but +4.5% 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 February was 1.6% below the year-earlier average -- well off the peak of +13.8% set back in September 2013. Although a full year has now passed with the lower withholding rates from the Tax Cuts and Jobs Act of 2017, the return of workers affected by the partial federal government shutdown likely distorted amounts withheld in February.

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.