Jack Dunn - Reclaiming Common Sense

The monthly jobs report, or employment situation report, is a market driver. The report is created using two databases: The Current Population Survey (CPS) and the Current Employment Statistics (CES) data. The CPS data measures the number of full-time jobs, the number of part-time jobs, the number of unemployed workers, and the number of people in the workforce population. From this data we receive the unemployment rate and the participation. The CES data measures the number of workers and the industries where we are seeing expansion and where we are seeing contraction. The Jobs Report is released the same week that the ADP Payroll Report is released. The headline CES Jobs report number measures the non-farm worker level, which includes government sector jobs. The headline ADP number is a private sector number that excludes the government sector. The three data sets have different sample sizes and different error rates. This column produced an article regarding the ADP payroll number, the CES worker number, and the magnitude of growth in jobs and unemployed workers.

  • "ADP Payroll Forecast: June Jumping Higher for All?" examined the month to month growth rates for all sectors, year to year growth rates for all sectors, and the annual and monthly total ADP payroll growth rates to project:
    •  all sectors except the Information sector should grow month to month and year to year.
    • the growth rate month to month would be greater than June 2017 and greater than May 2018
    • The growth rate year to year would be greater than June 2017 and greater than May 2018. 
    • The month to month growth would be greater than 156,000 jobs, greater than 221,000 jobs and could blast up 273,000 to 380,000 jobs
    • The June to June growth rate was expected to produce between 178,000 to 253,000 jobs. The overlap was between 178,000 and 253,000 so it was expected we would hit 225,000.
  • "June Jobs Report: How High Can It Go?" examined projected:
    • Even in the face of dropping weekly Continuing Unemployment Claims data, the unemployment level would rise
    • There would be a strong spike in full-time employment , non-seasonally adjusted,the possibly 1 million full-time jobs or more
    • There would be a drop in part-time jobs
    • Participation, non-seasonally adjusted, would improve.  We are not at full employment because that would mean that we were at "fullest employment" during the late 1990s and early 2000s. There is no "fullest" employment.
    •  The unemployment rate could tick higher, depending on the "substitution" of part-time jobs with full-time jobs
    • That the annual worker growth would generate a potential of 213,000 to 311,000 seasonally adjusted private sector workers being added to the economy this month.
    • The monthly growth rate would project a growth of 285,000 to 336.000
    • A big question was what would the seasonal factor(s) be for converting the non-seasonally adjusted data to the seasonally adjusted data. If we grew at the same rate month to month as we did during June 2017 there was a 100,000 job range possible - between 192,000 and 301,000 workers added
    • It was projected that Information Technology could drop month to month and should drop June to June. The big question was what would happen with the Government worker level, NSA and SA, as well as what would happen with the Education and Health Services data
    • It was projected that we would see a drop in multiple job holders
  • For both reports the question was how would the data from May be revised. An upward revision of 25,000 to May would "borrow" 25,000 workers from June. A 225,000 June worker number could be reported at 200,000. 

So what happened this month?

Private Sector Workers grew by 1.058 million non-seasonally adjusted workers. You did not hear this number. The seasonally adjusted private sector worker number was 202,000. The May number was revised up by 33,000 so the total gain this month was a seasonally adjusted 235,000 workers. But wait, there is more...

The seasonal factor was lower than that used during  June 2015 and June 2017. If those seasonal factors would have been used then, before the upward revisions to the data, the growth would have been either 216,000 SA CES private sector workers or 277,000. Add 33,000 and the total SA CES gain could have been reported at 310,000. Remember this column wrote an article saying that the number could reach 301,000 and also said that an increase of 25,000 would reduce the June Jobs Number by 25,000

We saw worker growth in all sectors except Education/Health Services and Government, as expected. We saw non-seasonally adjusted growth in Mining/Logging of 12,000 workers, construction (160,000,) Manufacturing (141,000,) Information (16,000,) Financial services (85,000,) Professional/Business Services (398,000,) Leisure/Hospitality (475,000,)  and Other Services (70,000.) 

We saw Unemployment Spike by 1.056 Million Workers. You may have heard that unemployment spiked by 499,000 seasonally adjusted workers. It was far greater. The thing to take note of is that during June of 2017 unemployment spiked almost by 1 million. Also note that saw larger NSA U-3 spikes during June 2003 and June 2009 and yet they were reported with smaller SA U-3 spikes. The power of seasonal adjustments is revealed. 

We saw full-time jobs  by over 1 million jobs. We also saw part-time jobs by almost half a million jobs. We saw a net gain of 457,000 jobs during June.  Here is the interesting thing: The CPS data reported a seasonally adjusted loss of 89,000 full-time jobs and a gain of 145,000 part-time jobs.  Up is down and down is up. This is huge because the participation rate is based on gains and losses in FT jobs, PT jobs, and unemployed workers. 

We saw the non-seasonally adjusted participation spike to 63.37%. We also saw the unemployment rate spike to 4.17%. If you had read the forecast article in this column you would have known that the NSA and SA U-3 level was going to jump and that it was projected both the U-3 rate and the Participation rate would spike.  a

We are not at full-employment. The unemployment rate is under 5% and very close to 4%. We "must" be at full-employment. The last time we had a June U-3 unemployment rate this low was June 2001 when the U-3 unemployment rate was 4.72%. The problem is that the participation rate was 67.25% back then. If we had the same level of participation as we had at that time then we would have 9.986 million more participants (FT, PT, or U-3.) This means instead of 6.8 million unemployed workers we would have closer to 16 million unemployed workers and an effective unemployment rate of 9.7%. If you want to compare unemployment rates you have to factor in participation rates. Were we at full-employment during June 2018? That means we were at fuller employment during June 2001. This is not a real thing. There is no such thing as "fuller." Fuller is the "wafer thin mint" scene form Monty Python's "Meaning of Life."

Multiple Job Holders increased this June. It was projected that multiple job holders should have fallen this June as they did last June. It was though people would trade multiple jobs for one full-time job. There will be an article to address these changes.

This report was remarkable. The data indicates President Trump has created more full-time jobs than Presidents Reagan, Clinton, Obama, or George W. Bush after 17 months. Wages have been rising. This data will be examined from an hourly rate and from a gross annual income perspective. Women recovered from the Jobs recession faster than men did. The Battle of the Sexes or "War on (Wo)Men) series will address this situation. There is more than one or two headline numbers in this report. If you feel that you are doing better, you are probably doing better. 

It's the economy.