Written by Steven Hansen
The headline seasonally adjusted BLS job growth was above expectations but soft reported due to the strike at General Motors.
Analyst Opinion of the BLS Employment Situation
The establishment and household surveys correlated weakly. The labor force grew faster than job growth. Jobs growth in 2019 continues to be worse than any year since 2010. The trends clearly continue to show a slower growing employment picture.
A summary from the report:
Total nonfarm payroll employment rose by 128,000 in October, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in food services and drinking places, social assistance, and financial activities. Within manufacturing, employment in motor vehicles and parts decreased due to strike activity. Federal government employment was down, reflecting a drop in the number of temporary jobs for the 2020 Census.
The economically intuitive sectors were mixed.
- The year-over-year rate of growth for employment slowed this month (red line on the graph below). The year-over-year growth rate is below the rate of growth one year ago. This is a year-over-year analysis which has no seasonality issues.
- Economic intuitive sectors of employment mixed.
- This month’s report internals (comparing household to establishment data sets) weakly correlated with the household survey showing seasonally adjusted employment growing 241,000 vs the headline establishment number expanding 128,000. 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 job growth – and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL job growth, not just non-farm).
- The household survey added 325,000 people to the labor force – this means only 2/3rds of the increased workforce found a job.
- The National Federation of Independent Business (NFIB)’s monthly Jobs Report is at the end of this post.
A summary of the employment situation:
- BLS reported: 128K (non-farm) and 131K (non-farm private). The headline unemployment rate declined from 3.5 % to 3.6 %.
- ADP reported: 125K (non-farm private)
- In Econintersect‘s October 2019 economic forecast released in late September, we estimated non-farm private payroll growth at 100,000 (based on economic potential) and 90,000 (fudged based on current overrun / under-run of economic potential).
- The market expected (from Econoday):
Seasonally Adjusted Data | Consensus Range | Consensus | Actual |
Nonfarm Payrolls – M/M change | 70,000 to 155,000 | 93,000 | 128,000 |
Unemployment Rate – Level | 3.65% to 3.7 % | 3.6 % | 3.6 % |
Private Payrolls – M/M change | 75,000 to 156,000 | 95,000 | 131,000 |
Manufacturing Payrolls – M/M change | -75,000 to 6,000 | -50,000 | -36,000 |
Participation Rate – level | 63.0 % to 63.2 % | 63.1 % | 63.3 % |
Average Hourly Earnings – M/M change | 0.1 % to 0.3 % | 0.2 % | +0.2 % |
Average Hourly Earnings – Y/Y change | 2.8 % to 3.2 % | 3.0 % | +3.0 % |
Avg Workweek – All Employees | 34.3 hrs to 34.5 hrs | 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 job situation.
The following chart compares the jobs gains this month with the same month historically – the worst growth this month since 2016:
Year-to-date unadjusted employment growth is 638,000 people below the pace of last year – and the worst year-to-date growth since 2010
The last month’s headline employment gains were revised upward. Generally speaking, the INITIAL employment gain estimate 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 of the headline data.
Unemployment
The BLS reported U-3 (headline) unemployment was 3.6 % with the U-6 “all-in” unemployment rate (including those working part-time who want a full-time job worsened from 6.9 % to 7.0 %. 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 61.0.
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 the household survey.
- Econintersect uses employment-population 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 job growth was around 150,000 – as this is approximately the new entries to the labor market caused by population growth.
- The growth in employment since the Great Recession has been in full-time jobs.
Employment Metrics
The growth trend in the establishment survey’s non-farm payroll year-over-year growth rate was trending up in 2018. The year-over-year growth rate is declining in 2019.
Unadjusted Non-Farm Payrolls Year-over-Year Growth
Another way to view employment is to watch the total hours worked where trends vary based on periods selected.
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) was unchanged at 34.4. A rising number normally indicates an expanding economy.
- Government employment declined 3,000 (-3K) with the Federal Government down 17K, state governments up 3K and local governments up 11K.
- The big contributor to employment growth this month was health care/social services (34.2K)
- Manufacturing employment down 36K, and construction grew 10K.
- The unemployment rate (from the household survey) for people between 20 and 24 (Table A-10) improved from 6.3 % to 6.2 %. This number is produced by a survey and is very volatile.
- Average hourly earnings (Table B-3) was up $0.06 to $28.18
Private Employment: Average Hourly Earnings
Economic Metrics
Economic markers used to benchmark economic growth (all from the establishment survey).
The truck employment was up 1.3K
Truck Transport Employment – Year-over-Year Change
Temporary help was down 8.1K.
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 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 historically low.
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)
National Federation of Independent Business (NFIB)’s monthly Jobs Report Statement:
Small businesses across the country are feeling the continued effects of the worker shortage, as it remained their top problem in October. Owners added an average addition of 0.12 workers per firm, generally unchanged from September, according to NFIB’s monthly jobs report. Although job creation has remained steady, net creation has faded since February.
“The small business economy continues at a solid pace in spite of a historic labor shortage that has slowed growth in critical sectors,” said NFIB’s President & CEO Juanita D. Duggan. “Small businesses are continuing to hire at record levels but would be doing even more if they could find qualified workers. This has consistently been the biggest issue for small businesses for months, as they’re doing everything they can to keep their businesses moving and growing.”
Owners are attempting to fill positions by raising compensation, with 30% of owners reporting raising compensation in October and 22% planning to do so in the coming months.
Sixty percent of owners reported hiring or trying to hire in October, but 88% of those reported few or no qualified applicants for their open positions. Sixty-five percent of construction firms reported few or no qualified applications, with 58% in manufacturing reporting the same. Growth in these industries is constrained due to the shortage of workers.
A seasonally adjusted net 18% of owners are planning to create new jobs. Not seasonally adjusted, 18% plan to increase total employment at their firm and 6% plan reductions. In construction, 25% of owners are planning to increase their employment and 7% are planning reductions.
Thirty-four percent of owners reported job openings they could not fill in the current period, a historically high figure. Fifty-two percent had openings in both construction and transportation, and 43% in manufacturing.
“The economy is doing well given the labor constraints it’s facing,” said NFIB’s Chief Economist Bill Dunkelberg. “Unemployment is very low, incomes are rising, and inflation is low – that’s a good economy.”
Up from last month, 32% of owners reported few qualified applicants for their open positions and 21% reported none. Reports of few or no qualified applicants were the highest in construction (65%), transportation (64%), and manufacturing (58%).
Other findings include:
- Thirty percent have openings for skilled workers and 13% have openings for unskilled labor.
- Eleven percent reported increasing employment an average of 2.8 workers per firm and 7% reported reducing employment an average of 3.6 workers per firm.
Click here to view the entire NFIB Jobs Report. For more information about NFIB, please visit NFIB.com.
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 seasonally 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 a 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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