The Jobs Report Is Much Weaker Than It Looks For Six Months

Payroll and Employment data from the BLS, chart by Mish.

Initial Thoughts

The unemployment rate ticked up in August as more people looked for work.
The discrepancy between jobs and employment continues for the sixth month.

I have been commenting on the jobs-employment discrepancy for four months. The two surveys measure different things. A person is either employed or not, but someone can have multiple jobs.

Generally the numbers move in the same direction over time. The Employment (Household Survey) is noisy, but 6 months is a reasonable time frame for discrepancies to resolve.

If you assume both surveys are correct, then the interpretation is that the strength in jobs since March is due to about 1.6 million people taking extra part-time jobs.

The only other explanation is that one of the surveys is flat out wrong.

BLS Jobs Statistics at a Glance

Total nonfarm payroll employment increased by 315,000 in August, and the unemployment rate rose to 3.7 percent, the US Bureau of Labor Statistics reported today. Notable job gains occurred in professional and business services, health care, and retail trade.

Here are the details from the monthly BLS Employment Report.

Nonfarm Payroll: +315,000 to 152,744,000 - Establishment Survey
Civilian Non-institutional Population: +172,000 to 264,184,000
Civilian Labor Force: +786,000 to 164,746,000 - Household Survey
Participation Rate: +0.3 to 62.4% - Household Survey
Employment: +442,000 to 158,732,000- Household Survey
Unemployment: +344,000 to 6,014,000- Household Survey
Baseline Unemployment Rate: +0.2 to 3.7% - Household Survey
Not in Labor Force: -613,000 to 99,438,000 - Household Survey
U-6 unemployment: No Change 6.7% - Household Survey

Revision Details

The change in total nonfarm payroll employment for June was revised down by 105,000, from +398,000 to +293,000
The change for July was revised down by 2,000, from +528,000 to +526,000.
With these revisions, employment in June and July combined is 107,000 lower than previously reported.

Economists' Estimates

Nonfarm Payrolls: 293,000 expected vs 315,000 actual
Unemployment Rate: 3.5% expected vs. 3.7% actual
Manufacturing Payrolls: 19,000 expected vs. 22,000 actual
Hourly Earnings: +0.4% expected vs 0.3% actual

The above estimates from Bloomberg Econoday.

Change in Nonfarm Payrolls

Change in Nonfarm Payrolls Since February 2020

Despite recent gains, Leisure and hospitality employment is 1.2 million lower than in February 2020.

Part-Time Jobs

Involuntary Part-Time Work: +225,000 to 4,149,000
Voluntary Part-Time Work: -59,000 to 21,044,000
Total Full-Time Work: -242,000 to 132,577,000
Total Part-Time Work: +413,000 to 26,237,000

The above numbers never total correctly. I list them as reported.

However, it is worth noting that for the third month full-time employment has declined.

In March, the BLS said full-time employment was 132,718,000. Today it says 132,335.00. Again we see huge divergences between the two reports.

This lends credence to the idea that part time jobs are fueling job gains.

Unemployment Rate – Seasonally Adjusted

Unemployment data from BLS, chart by Mish

Nonfarm Payrolls and Employment Levels

Recovery Synopsis

Jobs have finally recovered all losses.
Employment is down by 134,000
The numbers do not reflect increasing population or the type of job recovered.
The red and blue dotted lines show the still significant impact Covid has on the economy.

The impact of demographics and Covid are both in play. Neither jobs nor employment will ever return to the pre-Covid trendline.

Hours and Wages

Average weekly hours of all private employees fell 0.1 hours to 34.5 hours. Average weekly hours of all private service-providing employees fell 0.1 hours to 33.4 hours. Average weekly hours of manufacturers fell 0.1 hours to 40.3 hours.

Average Hourly Earnings of All Nonfarm Workers rose $0.12 to $32.36. Year-over-year, wages rose from $30.76 to $32.36. That's a gain of 5.2%.

Average hourly earnings of Production and Supervisory Workers rose $0.10 to $27.68. Year-over-year, wages rose from $26.10 to $27.68. That's a gain of 6.1%.

Despite the gains, wages have not kept up with inflation.

Birth Death Model

Starting January 2014, I dropped the Birth/Death Model charts from this report.

For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid.

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The model is wildly wrong at turning points but otherwise means little. It is also heavily revised and thus useless.

Alternative Measures of Unemployment

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

The official unemployment rate is 3.7%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc ., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 7.0%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. Some dropped out over Covid fears. And still others took advantage of the strong stock market and retired early.

The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Changing Employment Dynamics

Covid-19 had an enormous impact on the labor force. Some job losses are permanent, millions of other people now work from home.

Stimulus provided incentives to not work and some of those workers are returning to the labor market now.

As of January 2022, there were 22 million workers aged 60 and over. Millions will retire soon which will put upward pressure on hiring.

Strength is relative

It's important to put the jobs numbers into proper perspective.

In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.

In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.

In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

The household survey is a telephone survey conducted by the BLS. It measures unemployment and many other factors.

If you work one hour, you are employed. If you don't have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for Job Openings on Jooble or Monster or in the want ads does not count as "looking for a job". You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Recovery Not Complete

This recovery has been fast, but it was also the deepest on record. Some job losses are permanent.

Leisure and hospitality still has huge job needs.

Divergences

Once again we see a divergence between jobs and employment. Past differences have resolved in the direction of jobs. One of these sets likely won't.

Synopsis Since March

Employment +274,000
Jobs +1,888,000

The household numbers are admittedly noisy, but a six month divergence now stands out.

In expanding economies, discrepancies tend to resolve higher. At turns, discrepancies tend to resolve lower.

I suspect labor turnover and retirements have seriously distorted payrolls and at least some of this strength will be taken away.

Expect a Long But Shallow Recession With Minimal Job Losses

Given hiring pressures and boomer retirements, Expect a Long But Shallow Recession With Minimal Job Losses

The stock market is another issue. For discussion, please see Artificial Wealth vs. GDP: Why Earnings and the Stock Market Will Get Crushed

While I expect the unemployment rate will not rise much in this recession, it's another thing for the unemployment rate to decline and jobs to rise by millions.

This post originated at MishTalk.Com

The Jobs Report Is Much Weaker Than It Looks For Six Months - Mish Talk

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