Weak Private Payrolls But Unemployment Rate Hits New Low of 3.5%

-edited

Private payrolls rose by only 114,000 with overall jobs rising 136,000 thanks to temporary census workers.

Initial Reaction - Weak Readings

  • Last month was a shocker, this month forecasters changed their tune and came much closer to another set of weak readings.
  • The Econoday consensus was for a payroll expansion of 145,000 jobs, 135,000 of them private.
  • The ADP forecast was 135,000 jobs.
  • ADP revised its estimate last month from 195,000 to 157,000.
  • Revisions were positive for the first time in four months.

The dip in the unemployment rate is likely artificial and related to temporary census hiring.

Wage growth was negative for all workers but up for production workers.

Job Revisions

The change in total nonfarm payroll employment for July was revised up by 7,000 from +159,000 to +166,000, and the change for August was revised up by 38,000 from +130,000 to +168,000. With these revisions, employment gains in July and August combined were 45,000 more than previously reported. After revisions, job gains have averaged 157,000 per
month over the last 3 months.

Also recall my August 21 report: BLS Revises Payrolls 501,000 Lower Through March.

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +136,000 - Establishment Survey
  • Private Nonfarm Payroll: +114,000 - Establishment Survey
  • Employment: +391,000 - Household Survey
  • Unemployment: -275,000 - Household Survey
  • Involuntary Part-Time Work: -31,000 - Household Survey
  • Voluntary Part-Time Work:-124,000 - Household Survey
  • Baseline Unemployment Rate: 3.5% - Household Survey
  • U-6 unemployment: -0.3 to 6.9% - Household Survey
  • Civilian Non-institutional Population: +206,000
  • Civilian Labor Force: +117,000 - Household Survey
  • Not in Labor Force: +89,000 - Household Survey
  • Participation Rate: +0.0 to 63.2% - Household Survey

Employment Report Statement

The unemployment rate declined to 3.5 percent in September, and total nonfarm payroll employment rose by 136,000, the U.S. Bureau of Labor Statistics reported today. Employment in health care and in professional and business services continued to trend up.

Unemployment Rate – Seasonally Adjusted

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

Nonfarm Employment Change from Previous Month

Hours and Wages

Average weekly hours of all private employees were steady at 34.4 hours. Average weekly hours of all private service-providing were steady at 33.2 hours. Average weekly hours of manufacturers were steady at 40.5 hours.

Average Hourly Earnings of All Nonfarm Workers fell $0.01 to $28.09. A revision took away another penny, down from $28.11. That's a loss of .07%.

Average hourly earnings of Production and Supervisory Workers rose $0.04 to $23.65. That's a 0.17% gain.

Year-Over-Year Wage Growth

  • All Private Nonfarm rose from $27.30 to $28.09, a gain of 2.9%, down from 3.2% last month.
  • All production and supervisory rose from $22.86 to $23.65, a gain of 3.5%.

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

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 3.5%. 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 6.9%. 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.

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 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 addition of temporary census workers is not a positive. And Temporary census hiring skews the reports.

Job report volatility and revisions remains high.

Indications suggest weakening in the employment picture.

Mike “Mish” Shedlock

Comments (46)
No. 1-15
KidHorn
KidHorn

We have job openings and all the resumes stink. Do all young people get new jobs every year? Not sure how you would acquire much responsibility or get much experience doing this. Always in training.

stillCJ
stillCJ

Editor

"kids moving back home because they cannot find a job." Any kid that cannot find a job nowadays is hopeless. Then again, drug dealers probably do not report their employment.

Tony Bennett
Tony Bennett

Retail expecting a good Holiday. Of course, they did last year ... and actual was half of their expectation (4.3% to 4.8% growth).

WASHINGTON – The National Retail Federation today said it expects holiday retail sales during November and December to increase between 3.8 percent and 4.2 percent over 2018 to a total of between $727.9 billion and $730.7 billion.

Holiday sales during 2018 totaled $701.2 billion, an unusually small increase of 2.1 percent over the year before amid a government shutdown, stock market volatility, tariffs and other issues.

NRF expects seasonal hiring to grow at least 530,000 Even with trade uncertainty and the increasingly tight labor market, retailers have been hiring extra staff to meet expected demand during the holiday season. NRF expects retailers to hire between 530,000 and 590,000 temporary workers, which compares with 554,000 in 2018.

Matt3
Matt3

New headline for Mish "Private employment continues to grow and unemployment remains historically low" I fail to see the bad news. There are more jobs than qualified applicants. This has slowed hiring. Census added 1,000. Not a very significant number.

truthseeker
truthseeker

This sounds crazy but somewhere I read recently that for kids coming out of college today and are able to get a job, the average income is $ 28,000.00 a year! Is that really the case?

Realist
Realist

I agree with Matt3. I have been saying the the same thing for years. Nine years of slow job growth, combined with retiring boomers, and reduced immigration have led to today’s tight job market.

There are more jobs sitting empty than there are unemployed workers. The unemployed can’t fill those empty jobs because they don’t have the necessary skills or abilities.

Obviously the ideal solution is to train Americans to fill those empty jobs. However, that takes time and money, and businesses need to fill those jobs asap.

Another solution is to bring in skilled labour from other countries. Current policies seem to be aimed at reducing the immigration of skilled labour.

Some businesses attempt to poach workers from other businesses by offering higher wages or other perks. Not all businesses can afford to do this due to competitive pressures. Plus it doesn’t solve the the overall shortage problem.

Some businesses attempt to make up for worker shortages using technology and automation, but not all businesses are easily automated.

And some businesses resort to offshoring some of their business when they simply can’t get it done in the US.

Part of the problem is the large number of retiring baby-boomers. The number of Americans aged 65+ was 8% in 1950. Today it is 17%. By 2030 it will be 21%. Add in the 24% of Americans under 19, and soon the US will have only 55% of the population between 18 and 65.Though there will always be some workers under 19 and over 65, the shortage of workers, and especially skilled workers, is only going to get worse.

I expect the US economy to continue to grow slowly for several more years, barring a shock. The labour market will continue to get tighter, but wages will not rise much because of competitive pressures. Interestingly, the tight labour market is actually one of the restraints on economic growth.

Casual_Observer
Casual_Observer

Still not buying the tight labor market theory. There are several sources online which publish job openings but most of them are double counting. Removing this reduces the number of job openings by at least 50 percent. It was actually more but because of cutbacks in postings for H1B and other labor visa programs the number of double postings has been reduced. The bottom line is it is not as tight a labor market due to this and not hiring older workers. The biggest fraud is in the number of tech jobs which never go filled.

hmk
hmk

We actually need only about 100k jobs/month to keep a slow motion expansion going. The problem is many americans don't want to learn skilled labor for high paying jobs. Not sure why this is. If we allowed any immigrant to come in legally and work and pay taxes the labor shortage issue could be resolved as well as bring in more badly needed tax revenue. The lazy people who don't want to work can be supported by mom and dad instead of free stuff from the govt.

RobinBanks
RobinBanks

Unemployment numbers are always a lagging indicator. ECRI and ISM data are far more relevant.

Tengen
Tengen

Unemployment hitting a new low is code for the BLS eliminating more people from the labor force statistics. We would need another 3-4 million employed just to have 50% participation! We're not a nation of children and old people, these numbers are dismal for the Greatest Economy Ever™.

Agree with Mish that table 15 is a better approximation, albeit still on the low side.

bradw2k
bradw2k

Extremely low unemployment means companies are having to hire under-qualified applicants. That's a late-cycle phenomenon. It means there's a mismatch between investment monies and actual productivity.

WSJ says unemployment was last this low in 1969. That's not reassuring. Inflation-adjusted S&P500 went down for 12 years after that.

asteester
asteester

The deeper impact of this statement, Mish points out: "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." is that due to the Gig Economy, the unemployment calculations are dropping. I charged scooters for side cash and saw in the forums how many people were doing this for their sole income. There are a lot of people doing 1-3 gig jobs and nothing else and apparently that counts as employed and not just once but multiple times. Add in to that how many people have been reduced from full time to part time.

Unless the administration wants to take credit for the gig economy, I don't think there's anything to celebrate here.

P.S.. I love reading about unemployment on Mish Talk. Always so informative. Thanks Mish!

Maximus_Minimus
Maximus_Minimus

Obviously, we need negative unemployment to raise interest rates. How do you get a negative unemployment number? Well, how do you get a negative interest rate? Easy-peasy.

lol
lol

Like virtually all 3rd world countries,Unless you get a check from govt ,there's really no (legal) way to earn a living!

Country Bob
Country Bob

Milenials grew up getting participation trophies. They never learned how to operate a can opener. Then they spent $70K per year for 5-6 years playing in college, where they learned about gender neutral safe spaces. Once a day, they complain how long it is taking another college graduate to prepare their grande size chai latte with coconut milk. And what is this? No hand made scone to accompany my chai latte? Their whole day is ruined by the absent scone.

Obviously they will never truly join the work force -- they can't do anything, and lack enough basic education to even get training on the job. Politicians and government statistics offices are going to need to develop all new cover stories to make it appear like millennials are kind-a sort-a employed (but not really).

There will be resentment from older generations and LEGAL immigrants that these millennial babies never grew up, and now we need to work twice as hard while millennials pretend to work but not really.

Trying to make sense of statistics (like U-3), which are based on the assumption that everyone has a basic level of training, will be an exercise in futility.