Initial Reaction

Today’s establishment survey shows jobs rose by 200,000 topping the consensus estimate of 175,000. The household survey (Table A) shows the baseline unemployment rate was steady at 4.1% for the fourth consecutive month.

U-6 unemployment, which counts involuntary part-time jobs, rose for the second consecutive month. The workweek declined. Year-over-year wages were only up 2.4%. Those were the negatives in the report.

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: +200,000 – Establishment Survey
  • Employment: +409,000 – Household Survey
  • Unemployment: +108,000 – Household Survey
  • Involuntary Part-Time Work: +74,000 – Household Survey
  • Voluntary Part-Time Work: -745,000 – Household Survey
  • Baseline Unemployment Rate: flat at 4.1% – Household Survey
  • U-6 unemployment: +0.1 to 8.2% – Household Survey
  • Civilian Noninstitutional Population: +671,000
  • Civilian Labor Force: +518,000 – Household Survey
  • Not in Labor Force: +153,000 – Household Survey
  • Participation Rate: flat at 62.7 – Household Survey

Employment Report Statement

Total nonfarm payroll employment increased by 200,000 in January, and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in construction, food services and drinking places, health care, and manufacturing.

Revisions

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Unemployment Rate – Seasonally Adjusted

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The above Unemployment Rate Chart is from the BLS. Click on the link for an interactive chart.

Nonfarm Job Change from Previous Month

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The above chart and the following chart from the BLS show establishment survey jobs, not household survey employment.

Nonfarm Jobs Change from Previous Month by Job Type

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Hours and Wages

The Average Weekly Hours of all private employees declined by 0.2 hours to 34.3 hours. The average weekly hours of all private service-providing employees declined by by 0.1 hours to 33.3 hours. Average weekly hours of manufacturers was declined by 0.2 hour to 40.6 hours.

The Average Hourly Earnings of private workers rose $0.03 to $22.34. Average hourly earnings of private service-providing employees rose $0.03 to to $22.08. Average hourly earnings of manufacturers rose $0.09 at $21.31.

I calculate year-over-year hourly earnings as up 2.4%. Econoday says 2.9%. Here's the chart from the BLS.

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I do not know where Econoday got 2.9% from. I calculate (22.34-21.81)/21.81 = 0.0243

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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 comment further.

Table 15 BLS Alternate Measures of Unemployment

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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 4.1%. 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 8.2%. 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

The primary negatives in the report were the workweek which spilled over into the U-6 unemployment rate and wage growth. Given minimum wage hikes in 18 states, I expected wage growth to do a bit better. Year-over-year wages are only up 2.4%

Weak wage growth has not kept up with inflation, despite the BLS purporting otherwise.

Addendum

Bloomberg offers this wage explanation:

There were two things to consider when looking at the figure. For starters, the Bureau of Labor Statistics publishes two main series on average hourly earnings -- one for all private-sector nonfarm employees, and the other for only production and nonsupervisory workers. The former registered a big acceleration in wages, while the latter didn’t. Second, average weekly hours worked for all employees slumped, which could have artificially boosted the hourly earnings figure for that series.

Mike “Mish” Shedlock

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