January 2020 BLS Jobs Situation Shows Significant Improvement
Growth, Long/Short Equity, Momentum
Contributor Since 2008
Summary
- January's seem to always be strong months (likely a seasonal adjustment issue).
- Still the year-over-year employment growth is better than last month.
- The historical data was revised this month as a result of the annual benchmarking.
The headline seasonally adjusted BLS job growth was well above expectations. The historical data this month was revised as a result of the annual benchmarking.
From the BLS:
Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. In addition, several changes have been made to household survey data, including the annual update of population estimates.
A summary from the report:
Total nonfarm payroll employment rose by 225,000 in January, 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 construction, in health care, and in transportation and warehousing.
The economically intuitive sectors were mixed.
- The year-over-year rate of growth for employment improved 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) did not correlate with the household survey showing seasonally adjusted employment contracting 89,000 vs the headline establishment number expanding 335,000. 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 50,000 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: 225K (non-farm) and 206K (non-farm private). The headline unemployment rate grew from 3.5 % to 3.6 %.
- ADP reported: 291K (non-farm private)
- In Econintersect's January 2020 economic forecast released in late December 2019, we estimated non-farm private payroll growth at 60,000 (based on economic potential) and 130,000 (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 | 145,000 to 180,000 | 153,000 | 225,000 |
| Unemployment Rate - Level | 3.4 % to 3.6 % | 3.5 % | 3.6 % |
| Private Payrolls - M/M change | 140,000 to 165,000 | 150,000 | 206,000 |
| Manufacturing Payrolls - M/M change | -12,000 to 10,000 | -6,000 | -12,000 |
| Participation Rate - level | 63.2 % to 63.3 % | 63.2 % | 63.4 % |
| Average Hourly Earnings - M/M change | 0.1 % to 0.4 % | 0.3 % | +0.2 % |
| Average Hourly Earnings - Y/Y change | 2.9 % to 3.1 % | 3.0 % | +3.1 % |
| Avg Workweek - All Employees | 34.2 hrs to 34.4 hrs |
34.3 hrs | 34.3 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 job gains/losses this month with the same month historically - this is the best month for job growth/loss since 2015.
Year-to-date unadjusted employment growth is 115,000 people above the pace of last year - and the best year-to-date growth since 2015.
The last month's headline employment gains were revised down. Generally speaking, the INITIAL employment gain estimate is overstated when the economy is slowing and understated when the economy is accelerating.
Concentrating on the labor force growth Vs. employment growth - it should be noted that the trend lines have reversed in April 2019.
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 6.7 % to 6.9 %. 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 improved from 61.0 to 61.2.
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 declined in 2019 but improved this month..
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 34.3. A rising number normally indicates an expanding economy.
- Government employment grew 19,000 (19K) with the Federal Government up 12K, state governments down 13K and local governments up 20K.
- The big contributor to employment growth this month was leisure and hospitality (36K), health care/social services (47.2K), and specialty trade contractors (35.0K)
- Manufacturing employment down 12K and construction grew 44K.
- The unemployment rate (from the household survey) for people between 20 and 24 (Table A-10) worsened from 6.3 % to 6.6 %. This number is produced by a survey and is very volatile.
- Average hourly earnings (Table B-3) was up $0.07 to $28.44
Private Employment: Average Hourly Earnings
Economic Metrics
Economic markers used to benchmark economic growth (all from the establishment survey).
The truck employment was up 3.2K
Truck Transport Employment - Year-over-Year Change
Temporary help was down 1.5K.
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 started 2020 on a strong note, adding an average employment change per firm of 0.49 workers, the highest level since March 2019, according to NFIB's monthly jobs report. The small business labor market overall is starting on a good note, with strong hiring and higher employee compensation.
A historically high percentage of owners are planning to raise their employee compensation to fill their open positions. A net 36% (seasonally adjusted) reported raising compensation, up seven points from December. A net 24% (seasonally adjusted) plan to do so in the coming months.
"Small businesses are keeping the strong economic momentum going in the New Year," said NFIB's Chief Economist Bill Dunkelberg. "They are adding jobs and raising compensation. With the help of tax and regulatory relief, the small business economy is a strong force."
Up from December, 13% of owners reported increasing employment an average of 2.8 workers per firm and 4% reported reducing employment an average of 2.8 workers per firm.
Continuing from last year, small businesses' biggest problem is finding qualified workers for their open positions. Twenty-six percent of owners reported it as their No. 1 problem, one point below the August 2019 record high. Sixty-two percent of construction firms reported few or no qualified applicants and 42% cited the shortage of qualified labor as their top business problem. Comparable figures for manufacturing were 52% and 34% respectively.
A seasonally adjusted 37% of owners reported job openings they could not fill in the current period, up four points from December. Fifty percent had job openings in construction, an indication that the inability to assemble teams is a contributor to the lackluster performance of the industry.
A net 19% (seasonally adjusted) plan to create new jobs at their business. Twenty-four percent plan to increase total employment at their firm, up five points, and 3% plan reductions, down two points. In the construction industry, 34% plan to increase employment and 4% plan reductions.
Thirty percent of owners have openings for skilled workers and 14% have openings for unskilled labor. However, 29% reported few qualified applicants for their open positions and 20% reported none. Reports of "few or no qualified applicants" were high in construction (62%), manufacturing (52%), and retail (52%).
Click here to view the entire NFIB Jobs Report. For more information about NFIB, please visit NFIB.com.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.