Initial Reaction

Today’s employment report shows a big increase of 255,000 jobs. Last month was revised slightly higher to 292,000 from 287,000.

The household survey broke a three month trend of weakness with an employment gain of 420,000. June employment rose by 67,000. In May, employment rose by a mere 26,000 and in April, employment declined by a whopping 316,000.

The 4-month average in employment is only 49,250 so the household survey still has a lot of catching up to do.

Voluntary part-time employment rose by 212,000 and involuntary part-time employment rose by 97,000. Because of how the BLS compiles these stats, one cannot add the numbers together.

Supposedly, total part-time employment rose by 150,000 while full-time employment rose by 306,000. Thus one cannot add part-time and full-time employment together and derive the employment total either.

Let’s dive into the details in the BLS Employment Situation Summary, unofficially called the Jobs Report.

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +225,000 – Establishment Survey
  • Employment: +420,000 – Household Survey
  • Unemployment: -13,000 – Household Survey
  • Involuntary Part-Time Work: +97,000 – Household Survey
  • Voluntary Part-Time Work: +212,000 – Household Survey
  • Baseline Unemployment Rate: +0.0 to 4.9% – Household Survey
  • U-6 unemployment: +0.1 to 9.7% – Household Survey
  • Civilian Non-institutional Population: +223,000
  • Civilian Labor Force: +407,000 – Household Survey
  • Not in Labor Force: -184,000 – Household Survey
  • Participation Rate: +0.1 to 62.8 – Household Survey

Employment Report Statement

Total nonfarm payroll employment rose by 255,000 in July, and the unemployment rate was unchanged at 4.9 percent. Job gains occurred in professional and business services, health care, and financial activities. Employment in mining continued to trend down.

Unemployment Rate – Seasonally Adjusted

Nonfarm 2016-08A

Nonfarm Employment Change from Previous Month

Nonfarm 2016-08B

Nonfarm Employment Change from Previous Month by Job Type

Nonfarm 2016-08C

Hours and Wages

Average weekly hours of all private employees was flat at 34.4 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average weekly hours of manufacturers was flat at 40.7 hours.

Average hourly earnings of private workers rose $0.07 to $21.59. Average hourly earnings of private service-providing employees rose $0.07 to $21.37. Average hourly earnings of manufacturers rose $0.02 to $20.47.

For discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

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. Should anything interesting arise in the Birth/Death numbers, I will add the charts back.

Table 15 BLS Alternate Measures of Unemployment

Nonfarm 2016-08D

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

Notice I said “better” approximation not to be confused with “good” approximation.

The official unemployment rate is 4.9%. 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 9.7%. 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. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Strength is Relative

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

  1. In the household survey, if you work as little as 1 hour a week, even selling trinkets on EBay, you are considered employed.
  2. In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.
  3. 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 phone 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 jobs on Monster 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.

Final Thoughts

Despite the huge bounce for the second month in the establishment survey, the four month average in the household survey employment is only 49,250. The surveys are still out of line, but not by as much as they were last month.

Mike “Mish” Shedlock