The headline seasonally adjusted BLS job growth was strong. There were issues with the headlines
Analyst Opinion of the BLS Employment Situation
The headlines were at odds with the household survey (which showed employment declining) - and also at odds with the unadjusted data (which showed average employment decline for Januarys).
This month the data was re-benchmarked:
Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors using an improved methodology to select models. Also, household survey data for January 2017 reflect updated population estimates.
The rate of growth for employment significantly improved this month (red line on graph below). This is a year-over-year analysis which has no seasonality issues.
The unadjusted jobs decrease month-over-month was around 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 fairly inconsistent with the household survey showing seasonally adjusted employment declining 30,000 vs the headline establishment number of growing 237,000. 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 76,000 people from the workforce - this is one of the reasons the unemployment rate worsened.
The NFIB statement on jobs growth this month is at the end of this post.
A summary of the employment situation:
BLS reported: 227K (non-farm) and 237K (non-farm private). Unemployment rate was up 0.1 % to 4.8 %.
In Econintersect's January 2017 economic forecast released in late December, 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 / Econoday):
Seasonally Adjusted Data
Nonfarm Payrolls - M/M change
155,000 to 195,000
Unemployment Rate - Level
4.6 % to 4.7 %
Private Payrolls - M/M change
154,000 to 185,000
Average Hourly Earnings - M/M change
0.2 % to 0.4 %
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 2,407,000 - around average for times of economic expansion - and marginally better than last year.
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.
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 4.8 % with the U-6 "all in" unemployment rate (including those working part time who want a full time job) worsened 0.2 % to 9.4 %. 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 improved 0.2 to 59.9.
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 marginally improved.
Another way to view employment is to watch the total hours worked which are in a long term downtrend.
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) improved 0.1 to 34.4. A rising number normally indicates an expanding economy .
Government employment declined 10,000 (10K) with the Federal Government up 10K, state governments down 9K and local governments down 5K.
The big contributor to employment growth this month was health care (43.2K).
Manufacturing was up 5K, and construction was up 36K.
The unemployment rate (from household survey) for people between 20 and 24 (Table A-10) worsened 0.1 % to 8.3%. This number is produced by survey and is very volatile.
Average hourly earnings (Table B-3) was up $0.10 to $26.00.
Private Employment: Average Hourly Earnings
Economic markers used to benchmark economic growth (all from the establishment survey).
The truck employment was down 1.4K.
Truck Transport Employment - Year-over-Year Change
Temporary help up 14.8K.
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:
Job openings last month matched a recovery record set last November, and the number of small firms with plans to hire rose sharply, according to the January NFIB Jobs Report, released today.
"It looks like the optimism of the last two months is boosting the demand for workers. That's a great thing for Americans looking for jobs and a strong sign that the U.S. economy is heating up," said NFIB President and CEO Juanita Duggan.
The seasonally adjusted average employment change per firm posted a gain of 0.15 workers per firm. That's the best reading since September 2015. Fifty-three percent reported hiring or trying to hire, up two points from December, but 47 percent said they found few or no qualified applicants.
"Fifteen percent of small business owners said that finding qualified workers was their single biggest problem. That's an increase from the previous month and more proof that the labor market is getting tighter," said NFIB Chief Economist Bill Dunkelberg.
Thirty-one percent of all owners reported job openings they could not fill in the current period, up two points and the highest reading in this recovery. Thirteen percent reported using temporary workers, also up two points from December.
The scarcity of qualified workers is forcing small employers to increase compensation. Thirty percent of small business owners said they raised pay in January, an increase of four points from the December report.
"In a tight labor market, business owners have to raise compensation to attract and retain the employees they need," said Dunkelberg. "The competition for qualified workers is getting more intense, and I would expect that in the next few quarters more firms will try to increase prices to cover the higher cost of labor."
The NFIB Index of Small Business Optimism has been flying high since the election, a sign that small business owners anticipate major policy changes on taxes, regulations, and health care. Those are their three biggest problems, according to the quadrennial NFIB Problems and Priorities report.
"Small business owners have waited a long time for relief, and obviously they like what they are seeing so far," said Duggan. "I would caution the President and Congress that small business owners expect them to follow through on these issues."
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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