BLS Jobs Situation Is Better Than the Headlines in July 2013

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The July 2013 BLS jobs report was below expectations.

  • The miss this month may be due to seasonal adjustment errors as the unadjusted non-farm private jobs gain comparing the changes between Mays and Junes was better than any gain in the last 10 years.

  • economic intuitive sectors of employment were positive.
  • This month’s report internals are relatively more consistent between the survey portion and the establishment portion.

A summary of the employment situation:

  • BLS reported: 162K (non-farm) and 161K (non-farm private). Unemployment = down 0.2% to 7.4%
  • ADP reported: 200K (non-farm private)
  • Market expected: 175K (non-farm), 190K to 195K (non-farm private), 7.5% to 7.6% unemployment
  • Econintersect‘s Forecast: 155K (non-farm private) based on economic potential
  • The NFIB released a statement (below) saying that small business employment growth degraded in July 2013.

The BLS reports seasonally adjusted data. This data is highly manipulated, and Econintersect believes the unadjusted data gives a clearer picture of the jobs situation.

Non-seasonally adjusted non-farm payrolls rose 106,000 – better than last year, and the best growth in over 10 years.

Historical Unadjusted Private Non-Farm Jobs Growth Between Junes and Julys (Table B-1, data in thousands) – unadjusted (blue line) vs seasonally adjusted (red line)

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As always, the recent past data was revised.

Change in Seasonally Adjusted Non-Farm Payrolls Between Originally Reported (blue bars) and Current Estimates (red bars)

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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 down 0.2% at 7.4% with the U-6 “all in” unemployment rate (including those working part time who want a full time job) fell 0.5% to 14.0%. These numbers are volatile as they are created by survey every month.

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 unadjusted data base, demonstrated by the graph below.

Employment-Population Ratio

The jobs picture when you view the population as a whole. and with this months data it appears there has been little change in the jobs situation since the end of the recession.

  • 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.
  • In the latest BLS report employment-population ratio was unchanged at 58.7 – this ratio is above its short term trend between 58.5 and 58.6. 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 3 year growth trend is up, and the short term trends are mixed depending on the periods selected – however, it seems the growth trend in the last 18 months is relatively flat. (note that non-farm private does have a slightly positive trend line)

Unadjusted Non-Farm Payrolls Year-over-Year Growth

Another way to view employment is to watch the total hours worked which has been been growing at a slower and slower rate since the middle of 2010.

Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked

The bullets below use seasonally adjusted data:

  • Average hours worked (table B-2) was down 0.1 to 34.4. A falling number does not indicate an expanding economy . This number has been in a narrow channel several months.
  • Government employment expanded 1,000 with the Federal Government down 2,000, state governments down 3,000 and local governments up 6,000.
  • The big contributor to employment growth this month was restaurants and bars (38K), and retail trade (47K).
  • The big headwinds this month was arts and entertainment (-10K).
  • Manufacturing was down 6,000, while construction was down 6,000.
  • The unemployment rate for people between 20 and 24 (Table A-10) improved from 13.5% to 12.6%. This number is produced by survey and is very volatile – and this month’s degradation only reversed last month’s improvement.
  • Average hourly earnings (Table B-3) fell two cents to $23.98 (implying new jobs being created were earning less).

Private Employment: Average Hourly Earnings

Economic Metrics

Economic markers used to benchmark economic growth were mixed, but well away from recessionary levels.

The truck employment improved (6.3K). The year-over-year improvement is well into expansion territory, although it has a declining growth trend line.

Truck Transport Employment – Year-over-Year Change

Temporary help increased (7.7K). Note that many believe (I am not convinced), that Obamacare is creating a shift from permanent to temporary jobs. If this is the case, this metric would be inoperative.

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 is the victims in this mediocre employment situation. It is not people over 55.

Index of Employment Levels – 55 and up (dark grey line), 45 to 54 (purple line), 35 to 44 (orange line), 25 to 34 (green line), 20 to 24 (red line), and 16 to 19 (blue line)

Women are doing better than men.

Index of Employment Levels – Men (blue line) vs Women (red line)

Mom and Pop employment is sucking swamp water.

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)

And being white is not helpful for employment. FRED does not have data series for Asians, but the BLS does – and indexed Asian employment levels are similar to Hispanic.

Index of Employment Levels – Hispanic (blue line), African American (red line), and White (green line)

Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg released the following statement in advance of this jobs report:

“July was another slow month for jobs among NFIB’s 350,000 owners, with the average increase in employment coming in at a negative 0.11 workers per firm, the third negative monthly reading in a row.

“Nine percent of the owners (down 2 points) reported adding an average of 2.9 workers per firm over the past few months.  Offsetting that, 12 percent reduced employment (unchanged) an average of 2.6 workers (seasonally adjusted), producing the seasonally adjusted gain of negative 0.11 workers per firm overall.  The remaining 79 percent of owners made no net change in employment.  Fifty percent of the owners hired or tried to hire in the last three months and 40 percent reported few or no qualified applicants for open positions.

“Twenty percent of all owners reported job openings they could not fill in the current period (up 1 point).  Fifteen percent reported using temporary workers, up 3 points from June.  The health care law provides incentives to increase the use of temporary and part-time workers and June saw an increase of 360,000 part-time jobs (Household Survey) accompanied by a loss of 240,000 full-time jobs.  At a “macro” level, assuming 3 part-time workers deliver 90 hours of work are being substituted for 2 full-time workers (80 hours of work), it was about a wash in terms of hours worked.

“Job creation plans rose 2 points to a net 9 percent planning to increase total employment, better, and the best reading since August of 2012. Not seasonally adjusted, 12 percent plan to increase employment at their firm (down 2 points), and 6 percent plan reductions (unchanged).  Overall, there is not a lot of promise for new job growth.

“First quarter GDP growth has been revised down to 1.1 percent following 0.1 percent in the fourth quarter of 2012.  The first estimate for the second quarter is 1.7 percent, better than expected, but revisions for the past two quarters have been negative and large so even that lousy reading may be revised downward.

“Even so, these GDP growth numbers do not square with the growth in employment averaging over 190,000 per month.  What are these new employees making?  The growth in part-time jobs may explain part of this “inconsistency”.  But overall, the job market isn’t looking any better.”

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.

The above graphic (updated through October 2011) is the month-over-month change in employment based on the original headline non-farm employment level and the current stated employment levels at month end. You will note some pretty drastic backward revision for a major economic release the market reacts to in real time.

Econintersect Contributor Jeff Miller has the following description of BLS methodology:

  1. 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.
  2. The report is revised to reflect additional responses over the next two months.
  3. There is an adjustment to account for job creation — much maligned and misunderstood by nearly everyone.
  4. 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.

Econintersect has repeatedly pointed out questions about how the seasonal adjustment algorithms and data gathering methodology used by the BLS introduce uncertainty into interpretation of month to month changes in employment.

Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology. However, ADP is using a new methodology beginning with the October 2012 data – and only time will tell if their new approach was as good as their old one.

ADP (blue line) versus BLS (red line) – Monthly Jobs Growth Comparison

Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers. Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points. We are now 16 months past the post recession turning point in employment.

However, there is some discussion that neither the ADP or 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 Januarys.

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:

  • If Econintersect used employment / population ratios to determine the number, the exact number seems to be between 140,000 and 160,000. The graph below uses the historical employment-population ratios to show jobs growth per month if the population was 300 million.

Historical Monthly Jobs Growth Comparison if Population was 300 Million

  • 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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