The BLS job growth again was ok, not excellent. The unadjusted data was slightly below par for times of economic expansion - but not terrible. This report is similar to last month.
Analyst Opinion of the BLS Employment Situation
To sum this report up - employment is continuing to tread water - growing only as fast as theoretical working population growth. However, note that the household survey added 444,000 to the workforce (which is the reason the unemployment rate grew). There was really nothing good or nothing really terrible - although manufacturing declined. The year-over-year rate of growth was unchanged from last month. There was much mixed data within this report.
The rate of growth for employment was unchanged this month (red line on graph below). This is a year-over-year analysis which has no seasonality issues.
Unadjusted Non-Farm Private Employment - Year-over-Year Change (blue bars - left axis) and Year-over-Year Growth Acceleration / Deceleration From Previous Month (red line - right axis)
The unadjusted jobs increase month-over-month well below average for times of economic expansion.
Economic intuitive sectors of employment were mixed.
This month's report internals (comparing household to establishment data sets) was moderately inconsistent with the household survey showing seasonally adjusted employment improving 354,000 vs the headline establishment number of growing 156,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
The household survey added 444,000 people to the workforce.
The NFIB statement on jobs growth this month is at the end of this post.
A summary of the employment situation:
BLS reported: 156K (non-farm) and 167K (non-farm private). Unemployment rate was up 0.1 % to 5.0 %.
In Econintersect's September 2016 economic forecast released in late August, we estimated non-farm private payroll growth at 100,000 (based on economic potential) and 150,000 (fudged based on current overrun of economic potential);
The market expected (from Bloomberg):
Seasonally Adjusted Data
Nonfarm Payrolls - M/M change
155,000 to 200,000
Unemployment Rate - Level
4.8 % to 4.9 %
Private Payrolls - M/M change
30,000 to 207,000
Average Hourly Earnings - M/M change
0.2 % to 0.3 %
Av Workweek - All Employees
34.3 hrs to 34.4 hrs
The BLS reports seasonally adjusted data - manipulated with multiple seasonal adjustment factors, and Econintersect believes the unadjusted data gives a clearer picture of the jobs situation.
Non-seasonally adjusted non-farm payrolls declined 457,000 - a little above average of decline for times of economic expansion.
Historical Unadjusted Private Non-Farm Jobs Growth Between Augusts and Septembers (Table B-1, data in thousands) - unadjusted (blue line) vs seasonally adjusted (red line)
bls non-adjusted change.PNG
Last month's headline employment gains were revised up. Generally speaking, employment is overstated when the economy is slowing and understated when the economy is accelerating.
Change in Seasonally Adjusted Non-Farm Payrolls Between Originally Reported and Current Estimate
Most of the analysis below uses unadjusted data, and presents an alternative view to the headline data.
The BLS reported U-3 (headline) unemployment was 5.0 % with the U-6 "all in" unemployment rate (including those working part time who want a full time job) unchanged at 9.7 %. These numbers are volatile as they are created from the household survey.
BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)
Econintersect has an interpretation of employment supply slack using the BLS employment-population ratio, demonstrated by the graph below. The employment-population ratio was up 0.1 at 59.8.
The jobs picture - when the employment / population as a whole - has been on an uptrend since mid-2011. This ratio is determined by household survey.
Econintersect uses employment-populations ratios to monitor the jobless situation. The headline unemployment number requires the BLS to guess at the size of the workforce, then guess again who is employed or not employed. In employment - population ratios, the population is a given and the guess is who is employed.
This ratio has been in a general uptrend since the beginning of 2014. The employment-population ratio tells you the percent of the population with a job. Each 0.1% increment represents approximately 300,000 jobs. [Note: these are seasonally adjusted numbers - and we are relying on the BLS to get this seasonal adjustment factor correct]. An unchanged ratio would be telling you that jobs growth was around 150,000 - as this is approximately the new entries to the labor market caused by population growth.
The growth trend in the establishment survey's non-farm payroll year-over-year growth rate was trending up beginning of 2014 but has been trending down beginning in 2015. This month it was statisically unchanged.
Another way to view employment is to watch the total hours worked which are trending down..
Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked
The bullets below use seasonally adjusted data from the establishment survey except where indicated:
Average hours worked (table B-2) rebounded 0.1 to 34.4. A rising number normally indicates an expanding economy .
Government employment declined 11,000 (11K) with the Federal Government up 4K, state governments up 0K and local governments down 15K.
The big contributor to employment growth this month was health care (32.7K).
Manufacturing was down 13K, and construction was up 23K.
The unemployment rate (from household survey) for people between 20 and 24 (Table A-10) was unchanged at 8.1%. This number is produced by survey and is very volatile.
Average hourly earnings (Table B-3) was up $0.06 to $25.79.
Private Employment: Average Hourly Earnings
Economic markers used to benchmark economic growth (all from the establishment survey).
The truck employment was down 3.6K.
Truck Transport Employment - Year-over-Year Change
Temporary help up 23.2K.
Temporary Help Employment - Year-over-Year Change
Econintersect believes the transport sector is a forward indicator. Others look at temporary help as a forward indicator.
Food for Thought
Who are the victims in this mediocre employment situation. It is not people over 55.
Index of Employment Levels - 55 and up (blue line), 45 to 54 (red line), 35 to 44 (green line), 25 to 34 (purple line), 20 to 24 (light blue line), and 16 to 19 (orange line)
Women are doing better than men.
Index of Employment Levels - Men (blue line) vs Women (red line)
Mom and Pop employment remains below recessionary levels.
The less education one has, the less chance of finding a job.
Index of Employment Levels - University graduate (blue line), Some college or AA degree (orange line), high school graduates (green line), and high school dropouts (red line)
Here is an indexed view of employment levels.
Index of Employment Levels (from the BLS Establishment Survey) - Hispanic (blue line), African American (red line), and White (green line)
However, keep in mind that population growth is different for each group. Here is a look at employment to population ratios which clearly shows NO group has recovered from the Great Recession:
Employment / Population Ratios (from the BLS Household Survey) - Hispanic (blue line), African American (red line), and White (green line)
NFIB comment on this Month's BLS Job Situation
NFIB issued the following statement on employment this month:
The small business employment outlook remained negative in August, as job creation fell flat and owners still struggled to find qualified workers for open positions.
"Month after month we see small business owners looking for ways to be more fiscally efficient because of heavy-handed government mandates," said NFIB Chief Economist William C. Dunkelberg. "Regulations that lead to higher labor costs discourage small business owners from investing and hiring new employees."
Job creation among small firms was negative for the third straight month, according to the NFIB report. Owners reported recovery high levels of job openings that they could not fill.
Compensation levels increased marginally, a sign that owners are trying to find and retain good employees. In fact, 15 percent of small business owners say that finding qualified workers is their most important business problems.
"Policymakers clearly don't understand that without a robust small business sector, the economy will continue to lag," Dunkelberg said. "Overall, this month's report was basically unchanged and small business owners will likely continue to be in maintenance mode through the rest of the year."
Twenty-four percent of small business owners reported job openings in September, a six-point plunge from the previous month, which could mean a higher unemployment rate in the months ahead, according to the latestNFIB Jobs Report released today.
"The high level of uncertainty among small business owners makes them reluctant to create new jobs and hire new employees," said NFIB President and CEO Juanita Duggan. "Small business is traditionally the engine of job growth. Unfortunately for the economy, that engine isn't revving."
A net 10 percent of small businesses said that they had plans to create new jobs, up one point from August. Very weak activity in the retail and construction industries offset strong job creation in professional services and manufacturing.
"This is a very weak recovery, and what little strength there is has been uneven," said Duggan.
Seventeen percent of owners said that finding qualified applicants was their biggest problem, a two-point increase from the previous month. That headache has been steadily creeping up the list of Single Most Important Business Problems in the NFIB data. In September it ranked second in a list of nine problems.
NFIB Chief Economist Bill Dunkelberg said that the fall in job openings might suggest frustration among small business owners who have been dealing with a tightening labor market for months.
"They are having a very hard time finding qualified workers. That's driving up compensation. On the other hand, they can't raise prices because of weakness in the economy. Some are even cutting prices.
"The combination of those two forces creates tremendous pressure on small businesses to find other ways to reduce costs. Creating fewer jobs is one way to ease that pressure."
Caveat on the use of BLS Jobs Data
The monthly headline data ends up being significantly revised for months after the initial release - and is subject also to annual revisions. The question remains how seriously can you take the data when first released.
Econintersect Contributor Jeff Miller has the following description of BLS methodology:
An initial report of a survey of establishments. Even if the survey sample was perfect (and we all know that it is not) and the response rate was 100% (which it is not) the sampling error alone for a 90% confidence interval is +/- 100K jobs.
The report is revised to reflect additional responses over the next two months.
There is an adjustment to account for job creation — much maligned and misunderstood by nearly everyone.
The final data are benchmarked against the state employment data every year. This usually shows that the overall process was very good, but it led to major downward adjustments at the time of the recession. More recently, the BLS estimates have been too low.
ADP (blue line) versus BLS (red line) - Monthly Jobs Growth Comparison
However, there is some discussion that neither the ADP nor BLS numbers are correct - as both are derived by a sampling methodology. The answer could be that there is no correct answer in real time - and that it is best to look at the trends. As has been noted, all eventually end up correlating.
The BLS uses seasonal adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. The following graph which shows unadjusted job growth - seasonal adjustments spread employment growth over the entire year. Employment does not really grow in the second half of the year and always falls significantly in January.
There is the proverbial question on what is minimal jobs growth each month required to allow for new entrants to the market. Depending on mindset, this answer varies. According to Investopdia, the number is between 100,000 and 150,000. The Wall Street Journal is citing 125K. Mark Zandi said 150K. Econintersect is going with Mark Zandi's number:
In Econintersect's June 2014 economic forecast released in late May, we estimated non-farm payroll growth at 160,000 (unadjusted based on economic potential) and 229,000 (fudged based on current overrun of economic potential).
If Econintersect uses employment - population ratios, the correct number would be the number where this ratio improved. Using the graph below, the ratio began to improve starting a little after mid-year. This corresponds to the period where the 12 month rolling average of job gains hit 150,000.
Employment to Population Ratio
Note: The ratio could be fine tuned by adjusting to the ratio of employment to working age population rather than the total population. However, this would not change the big picture that an increase of somewhere around 150,000 (+/-) is needed for the growing population numbers. We have estimated 140k - 160k. The number might possibly be within the range 125k - 175k. Econintersect cannot find reason to support the estimates below 125k.
The question of how changing demographics impact the employment numbers is at the margins of analysis. Econintersect will publish more on this fine tuning going forward, both in-house research and the work of others.
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