Written by Steven Hansen
The BLS job growth continues to be just ok, not excellent. The data was slightly below par for times of economic expansion – but not terrible. This report is similar to the previous months.
Analyst Opinion of the BLS Employment Situation
To sum this report up – employment is continuing to tread water – growing little better than the theoretical working population growth. However, note that the household survey removed 226,000 to the workforce (which is the reason the unemployment rate declined). There was really nothing good or nothing really terrible – although manufacturing declined. The year-over-year rate of growth insignificantly declined this month.
- The rate of growth for employment was marginally declined 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)
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- The unadjusted jobs increase month-over-month slightly below average for times of economic expansion.
- Economic intuitive sectors of employment were generally positive – but far from strong.
- This month’s report internals (comparing household to establishment data sets) was fairly consistent with the household survey showing seasonally adjusted employment growing 160,000 vs the headline establishment number of growing 178,000. 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 removed 226,000 people to the workforce – this is the primary reason the unemployment rate declined.
- The NFIB statement on jobs growth this month is at the end of this post.
A summary of the employment situation:
- BLS reported: 178K (non-farm) and 156K (non-farm private). Unemployment rate was down 0.3 % to 4.6 %.
- ADP reported: — 216K (non-farm private)
- In Econintersect‘s November 2016 economic forecast released in late October, we estimated non-farm private payroll growth at 95,000 (based on economic potential) and 150,000 (fudged based on current overrun of economic potential);
- The market expected (from Bloomberg / Econoday):
| Seasonally Adjusted Data | Consensus Range | Consensus | Actual | |
| Nonfarm Payrolls – M/M change | 150,000 to 230,000 | 170,000 | 178,000 | |
| Unemployment Rate – Level | 4.8 % to 4.9 % | 4.9 % | 4.6 % | |
| Private Payrolls – M/M change | 140,000 to 190,000 | 155,000 | 156,000 | |
| Average Hourly Earnings – M/M change | 0.1 % to 0.3 % | 0.2 % | -0.1 % | |
| Av Workweek – All Employees |
| 34.4 hrs | 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 grew 325,000 – a little below average of decline for times of economic expansion – and the worst since 2012.
Historical Unadjusted Private Non-Farm Jobs Growth Between Octobers and Novembers (Table B-1, data in thousands) – unadjusted (blue line) vs seasonally adjusted (red line)
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Last month’s headline employment gains were revised down. 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
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Most of the analysis below uses unadjusted data, and presents an alternative view to the headline data.
Unemployment
The BLS reported U-3 (headline) unemployment was 4.6 % with the U-6 “all in” unemployment rate (including those working part time who want a full time job) improved 0.2 % to 9.3 %. 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 unchanged at 59.7.
Employment-Population Ratio
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.
Employment Metrics
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 insignificantly worsened.
Unadjusted Non-Farm Payrolls Year-over-Year Growth
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) is unchanged at 34.4. A rising number normally indicates an expanding economy .
- Government employment grew 22,000 (22K) with the Federal Government up 3K, state governments up 5K and local governments up 14K.
- The big contributor to employment growth this month was health care (34.7K).
- Manufacturing was down 4K, and construction was up 19K.
- The unemployment rate (from household survey) for people between 20 and 24 (Table A-10) improved 0.3 % to 8.1%. This number is produced by survey and is very volatile.
- Average hourly earnings (Table B-3) was down $0.03 to $25.89.
Private Employment: Average Hourly Earnings
Economic Metrics
Economic markers used to benchmark economic growth (all from the establishment survey).
The truck employment was up 1.1K.
Truck Transport Employment – Year-over-Year Change
Temporary help up 14.3K.
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 creation remained weak in November, but more small employers said they have open positions, and a greater percentage of firms reported plans to hire in the future, according to the monthly National Federation of Independent Business (NFIB) Jobs Report, released today.
“Job creation among small businesses was relatively weak in November, but there are clear signs that business owners are feeling better about the future,” said NFIBPresident and CEO Juanita Duggan. “They are trying to hire, but they are still having a difficult time finding qualified employees.”
The NFIB Index of Small Business Optimism, due out on December 13th, may paint a clearer picture, according to Duggan.
The November Jobs Report posted a gain of 0.02 workers per firm. According to the report, 15 percent of small firms have plans to create jobs, a five-point increase and the strongest reading in 2016.
“That’s a positive sign that small business owners have enough confidence in the future to make investments in new employees,” said NFIB Chief Economist Bill Dunkelberg. “But the scarcity of qualified workers continues to be a frustration for small employers.”
Fifty-eight percent of small employers said they hired or tried to hire in November. Among them, however, 52 percent said they found few or no qualified workers for the positions they were trying to fill. Finding qualified workers continues to rank as one of the top three ‘Single Most Important Business Problems,’ according to the Jobs Report.
“We may be seeing a light at the end of the tunnel,” said Duggan. “This data signals that small business, which is the traditional engine of job creation, is coming to life and ready to put Americans back to work.”
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.
Non-Seasonally Adjusted Employment – Private Sector
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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