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July 2018 BLS Jobs Situation Continues Strong

Summary

This was not the best jobs report of the year - but when you average things out it was more than satisfactory.

The internals of the report were strong.

Year-to-date jobs growth second best this century.

The headline seasonally adjusted BLS job growth was below expectations. The internals generally look good, and the pace of year-to-date growth exceeds last year.

The household and establishment surveys were not in sync. The year-to-date employment is running above the pace of last year. There were significant employment declines such as sporting/hobby stores [likely most were Toys-R-Us].

  • The year-over-year rate of growth for employment insignificantly decelerated this month (blue bars on graph below). This is a year-over-year analysis which has no seasonality issues.

  • Economic intuitive sectors of employment were positive.
  • This month's report internals (comparing household to establishment data sets) was inconsistent with the household survey showing seasonally adjusted employment expanding 389,000 vs the headline establishment number expanding 170,000. 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 105,000 people to the labor force.
  • 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: 157K (non-farm) and 170K (non-farm private). Unemployment rate declined from 4.0 % to 3.9 %.
  • ADP reported: 219K (non-farm private)
  • In Econintersect's July 2018 economic forecast released in late June, we estimated non-farm private payroll growth at 200,000 (based on economic potential) and 230,000 (fudged based on current overrun / under-run of economic potential).
  • The market expected (from Nasdaq / Econoday):
Seasonally Adjusted Data Consensus Range Consensus Actual
Nonfarm Payrolls - M/M change 150,000 to 205,000 188,000 157,000
Unemployment Rate - Level 3.8 % to 4.0 % 3.9 % 3.9 %
Private Payrolls - M/M change 148,000 to 204,000 184,000 170,000
Manufacturing Payrolls - M/M change 11,000 to 22,000 15,000 37,000
Participation Rate - level 62.7 % to 62.8 % 62.8 % 62.9 %
Average Hourly Earnings - M/M change 0.2 % to 0.4 % 0.3 % +0.3 %
Average Hourly Earnings - Y/Y change 2.6 % to 2.8 % 2.7 % +2.7 %
Av Workweek - All Employees
34.4 hrs to 34.5 hrs
34.5 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 expanded 80,000 - less than last year. The following chart compares the jobs gains this month with the same month historically:

Year-to-date unadjusted employment growth is 164,000 people above the pace of last year.

Last month's headline employment gains were revised up. 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 to the headline data.

To read more analysis of the jobs report [click here].

Other Economic News this Week:

The Econintersect Economic Index for August 2018 improvement cycle continues and remains well into territory associated with normal expansions. Our index is now at the highest level since December 2014. There are continuing warning signs of consumer over-consumption.

To view all of our analysis this past week - [click here].

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.