October 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 150,000 jobs in October (well below the 179,000 expected) -- a drop of more than 50% from the original September print, and the second-smallest gain of 2023. Also, August and September 2023 employment changes were revised down by a combined 101,000 (August: -62,000; September: -39,000). With these revisions, only July’s employment gain remains higher than the original estimate; all other months of 2023 have been revised lower.

Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up to 3.9%, as the retreat in the number of employed (-348,000) exceeded the labor-force shrinkage of (-201,000). 

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Observations from the employment reports include:

* The two surveys diverged, which erodes their credibility. In addition, the CES (business birth/death model) adjustment (+412,000) was the second largest in history -- surpassed by only October 2022’s +511,000; i.e., the CES data implies the second-fastest rate of business formation (or at least hiring) in history. Also, although the seasonal adjustment was a record high, it was smaller than might have been expected (+940,000) based on a trend of October adjustments encompassing the prior decade.

* Goods-producing industries lost 11,000 jobs; service providers: +161,000. Job gains occurred in health care (+58,400), government (+51,000), and social assistance (+18,800). Total nonfarm employment (156.9 million) is now nearly 4.6 million jobs above its pre-pandemic level in February 2020 (private sector: +4.5 million; public sector: +21,000). Nonetheless, employment is perhaps 5.1 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing shed 35,000 jobs (led by durable goods: -36,000), thanks to a decline of 33,000 in motor vehicles and parts that was largely due to strike activity. That result may be consistent with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which fell back into contraction (46.8) in October. Wood products manufacturing lost 200 jobs (ISM was unchanged); paper manufacturing: +600 (ISM decreased); construction: +23,000 (ISM increased).

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* The number of employment-age persons not in the labor force jumped (+416,000) to 99.9 million; that level is 4.7 million higher than in February 2020. Because the working-age civilian population expanded (+214,000) while the number of employed shrank (-348,000), the employment-population ratio (EPR) dipped to 60.2%, which is 0.9PP below its February 2020 level. 

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* Also, because the working-age civilian population grew by 214,000 while the labor force shrank by 201,000, the labor force participation rate decreased fractionally to 62.7%. Average hourly earnings of all private employees nudged up by $0.07 (to $34.00), and the year-over-year increase decelerated to +4.0%. However, because the average workweek for all employees on private nonfarm payrolls edged down to 34.3 hours, average weekly earnings fell (-$0.99) to $1,166.20 (+3.4% YoY). With the consumer price index running at an annual rate of +3.7% in September, the average worker appears likely to have once again fallen behind in terms of purchasing power. 

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* Full-time workers rose (+326,000) to 134.5 million; there are now 3.7 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by 8.0 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 -- jumped by 218,000, while those working part time for non-economic reasons dropped (-613,000); multiple-job holders: +205,000. 

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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 October advanced by $16.77 billion, to $252.5 billion (+7.1% MoM; +2.1% 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 October was down 1.6% 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.