Payrolls Expand by Whopping 312,000 as Unemployment Rate Rises to 3.9%

​Initial Reaction

A number of scheduled economic reports did not happen this month due to the government shutdown. Apparently, the BLS is deemed vital.

Job came in at 312,000 but employment only rose by 142,000. The unemployment rate rose by 0.2% because the labor force expanded by 419,000.

Somehow this reports smacks of seasonal adjustments gone haywire and or temporary seasonal hiring that will vanish. Time will tell.

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

Job Revisions

Seasonally adjusted household survey data have been revised using updated seasonal |adjustment factors, a procedure done at the end of each calendar year. Seasonally |adjusted estimates back to January 2014 were subject to revision.

The change in total nonfarm payroll employment for November was revised up from +155,000 to +176,000, and the change for October was revised up from +237,000 to +274,000. With these revisions, employment gains in October and November combined were 58,000 more than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.) After revisions, job gains have averaged 254,000 per month over the last 3 months.

BLS Jobs Statistics at a Glance

• Nonfarm Payroll: +312,000 – Establishment Survey
• Employment: +142,000 – Household Survey
• Unemployment: +276,000 – Household Survey
• Involuntary Part-Time Work: -124,000 – Household Survey
• Voluntary Part-Time Work: +325,000 – Household Survey
• Baseline Unemployment Rate: +0.2 to 3.9% – Household Survey
• U-6 unemployment: steady at 7.6% – Household Survey
• Civilian Non-institutional Population: +180,000
• Civilian Labor Force: +419,000 – Household Survey
• Not in Labor Force: -237,000 – Household Survey
• Participation Rate: +0.2 to 63.1– Household Survey

Employment Report Statement

Total nonfarm payroll employment increased by 312,000 in December, and the unemployment rate rose to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade.

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 Employment Change from Previous Month

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Hours and Wages

Average weekly hours of all private employees rose 0.1 hours to at 34.5 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average weekly hours of manufacturers rose 0.1 hours to 40.9 hours.

Average Hourly Earnings of All Nonfarm Workers rose $0.11 to $27.48. That a 0.51% gain. Average hourly earnings of private service-providing employees rose $0.10 to $27.21, a gain of 0.37%. Average hourly earnings of manufacturers rose $0.07 to $27.30, a gain of 0.26%.

Average hourly earnings of Production and Supervisory Workers rose $0.09 to $23.05. That’s a 0.39% gain. Average hourly earnings of private service-providing employees rose $0.09 to $22.77, a gain of 0.40%. Average hourly earnings of manufacturers rose $0.04 to $21.80, a gain of 0.18%

Year-Over-Year Wage Growth

• All Private Nonfarm from $26.64 to $27.48, a gain of 3.2%
• All production and supervisory from $22.31 to $23.05, a gain of 3.3%.

Wage inflation remains benign.

For a 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 comment further.

Table 15 BLS Alternative 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 3.9%. 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 7.6%. 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 alleged robust jobs picture, wage growth has been benign. Wages have not kept up with inflation, especially for those in school, those seeking to buy a home, and those who buy their own health insurance.

Mike “Mish” Shedlock