Initial Reaction

Today’s employment report shows an increase of 156,000 jobs. For the year, job growth has averaged 178,000 per month, compared with an average of 229,000 per month in 2015.

Employment in food services and drinking places continued to trend up in September (+30,000) and has increased by 300,000 over the year.

Retail trade employment continued to trend up over the month (+22,000). Within the industry, job gains occurred in clothing and clothing accessories stores (+14,000) and in gasoline stations (+8,000). Over the year, employment in retail trade has risen by 317,000.

The change in total nonfarm payroll employment for July was revised down from +275,000 to +252,000, and the change for August was revised up from +151,000 to +167,000. With these revisions, employment gains in July and August combined were 7,000 less than previously reported.

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: +156,000 – Establishment Survey
  • Employment: +354,000 – Household Survey
  • Unemployment: +90,000 – Household Survey
  • Involuntary Part-Time Work: -159,000 – Household Survey
  • Voluntary Part-Time Work: +165,000 – Household Survey
  • Baseline Unemployment Rate: +0.1 to 5.0% – Household Survey
  • U-6 unemployment: +0.0 to 9.7% – Household Survey
  • Civilian Non-institutional Population: +237,000
  • Civilian Labor Force: +444,000 – Household Survey
  • Not in Labor Force: -207,000 – Household Survey
  • Participation Rate: +0.1 to 62.9 – Household Survey

Employment Report Statement

Total nonfarm payroll employment increased by 156,000 in September, and the unemployment rate was little changed at 5.0 percent. Job gains occurred in professional and business services and in health care.

Unemployment Rate – Seasonally Adjusted

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Nonfarm Employment Change from Previous Month

nonfarm-2016-10b

Nonfarm Employment Change from Previous Month by Job Type

nonfarm-2016-10c

Hours and Wages

Average weekly hours of all private employees rose 0.1 hours to 34.4 hours. Average weekly hours of all private service-providing employees rose 0.1 hours to 33.3 hours. Average weekly hours of manufacturers rose 0.1 hours to 40.7 hours.

Average hourly earnings of private workers rose $0.05 to $21.68. Average hourly earnings of private service-providing employees rose $0.05 to $21.46. Average hourly earnings of manufacturers rose $0.02 to $20.57.

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-2016-10d

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 5.0%. 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

This was neither a strong nor weak report this month, but it may encourage the Fed to hike in December while it can.

Mike “Mish” Shedlock