Ah, at first glance 222,000 jobs growth in June is great. And if you waded a little deeper, you would notice that even last month's numbers were revised up for a change.
The household and establishment surveys were in sync this month. The unemployment rate drop was caused by a significant increase in the size of the workforce.
This month again is a mixed bag of information depending on what metric one believes is important. Nothing here suggests the economy has changed for the better or worse.
- The year-over-year rate of growth for employment declined this month (red line on graph below). This is a year-over-year analysis which has no seasonality issues.
- Economic intuitive sectors of employment were mixed.
- This month's report internals (comparing household to establishment data sets) was fairly consistent with the household survey showing seasonally adjusted employment growing 245,000 vs the headline establishment number of growing 222,000. 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 361,000 people to the labor force (which is why the unemployment rate degraded).
A summary of the employment situation:
- BLS reported: 222K (non-farm) and 187K (non-farm private). Unemployment rate degraded 0.1 % to 4.4 %.
- ADP reported: 158K (non-farm private)
- In Econintersect's June 2017 economic forecast released in late May, we estimated non-farm private payroll growth at 135,000 (based on economic potential) and 190,000 (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||140,000 to 200,000||170,000||222,000|
|Unemployment Rate - Level||4.2 % to 4.4 %||4.3 %||4.4 %|
|Private Payrolls - M/M change||135,000 to 190,000||164,000||187,000|
|Participation Rate - level||62.8 %|
|Average Hourly Earnings - M/M change||0.2 % to 0.3 %||0.3 %||+0.2 %|
|Average Hourly Earnings - Y/Y change||2.5 % to 2.7 %||2.6 %||+2.5 %|
|Av Workweek - All Employees||
|34.4 hrs||34.5 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 1,010,000 - about average for times of economic expansion - but worse than last year.
The comparing the jobs gains this month with the same month historically:
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.Unemployment
The BLS reported U-3 (headline) unemployment was 4.4 % with the U-6 "all in" unemployment rate (including those working part time who want a full time job) degraded 0.2 % to 8.6 %. 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 0.1 to 60.1.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.
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. Year-over-year growth declined this month.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 - but currently in a short term uptrend.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 34.5. A rising number normally indicates an expanding economy .
- Government employment grew 35,000 (35K) with the Federal Government up 4K, state governments down 4K and local governments up 35K.
- The big contributor to employment growth this month was health care and support services (59.1K).
- Manufacturing was up 1K, and construction was up 16K.
- The unemployment rate (from household survey) for people between 20 and 24 (Table A-10) was degraded 0.8 to 7.5 %. This number is produced by survey and is very volatile.
- Average hourly earnings (Table B-3) was up $0.04 to $26.25.
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 13.4K.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.
Overall, the feel I get going through this report is mixed. In some ways it is saying the economy may be getting better - but at the same time indicated deceleration. One cannot look at a single report. I await next month's report.
Other Economic News this Week:
The Econintersect Economic Index for July 2017 continues to forecast strengthening economic fundamentals - with the index showing normal growth for the third month in a row. Six-month employment growth forecast indicates modest improvement in the rate of growth.
Bankruptcies this Week from bankruptcydata.com: Quadrant 4 System, Privately-held True Religion Apparel, Cecil Bancorp
Please visit our landing page for a summary of all of our analysis over the past week.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.