Saturday, February 2, 2019

US jobs start 2019 strongly, even with the shutdown

I was intrigued to see what the first US jobs report for 2019 might hold yesterday, partially because I wanted to see what effects the government shutdown might have on the January numbers, and to see if the shakiness we saw in the economy at the end of 2018 was continuing.

That was anything but the case, at least in the jobs market, as 2019 started out with a bigtime report.
Total nonfarm payroll employment increased by 304,000 in January, compared with an average monthly gain of 223,000 in 2018. In January, employment grew in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing. There were no discernible impacts of the partial federal government shutdown on the estimates of employment, hours, and earnings from the establishment survey.
That's because people that were still employed but on furlough were counted as "employed" in the payrolls survey, because they would eventually receive back pay for the work they did. Which helps explain why federal government employment could be UP 1,000 people as the shutdown was going on.

Where the shutdown's effect was shown was in unemployment rate, as explained in the special note in January's report.
In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week. Workers who indicated that they were not working during the entire survey reference week and expected to be recalled to their jobs should be classified as unemployed on temporary layoff. In January 2019, there was an increase in the number of federal workers who were classified as unemployed on temporary layoff. However, there also was an increase in the number of federal workers who were classified as employed but absent from work. BLS analysis of the underlying data indicates that this group included federal workers affected by the shutdown who also should have been classified as unemployed on temporary layoff. Such a misclassification is an example of nonsampling error and can occur when respondents misunderstand questions or interviewers record answers incorrectly. If the federal workers who were recorded as employed but absent from work had been classified as unemployed on temporary layoff, the overall unemployment rate would have been slightly higher than reported. However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reassign survey responses.
This helped explain how the unemployment rate hit 4.0% for the first time since last June. It especially showed in the U-6 rate, which includes people "working part-time for economic reasons." That went up from 7.6% in December to 8.1% in January, and likely reflects people with side jobs and reduced hours that kicked in with the shutdown.

But the unemployment effects should be reversed with the next report (barring another shutdown in 2 weeks), and the real story is the big jobs gains for January. There also was decent news in the jobs report in the annual benchmarking process, which looks at new population and payroll information.
In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs for March 2018. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which counts jobs covered by the Unemployment Insurance (UI) tax system. The benchmark process results in revisions to not seasonally adjusted data from April 2017 forward. Seasonally adjusted data from January 2014 forward are subject to revision. In addition, data for some series prior to 2014, both seasonally adjusted and unadjusted, incorporate other revisions....

The effect of these revisions on the underlying trend in nonfarm payroll employment was minor. For example, the over-the-year change in total nonfarm employment for 2018 was revised from +2,638,000 to +2,674,000 (seasonally adjusted).

What's interesting in the jobs benchmarking is that it revised the jobs gains in the summer upward, but December's gain was revised down by 90,000 (from 312,000 to 222,000), so it ended up evening out for the year.

My only word of caution with the jobs report is that January's "gains" were largely the result of lower-than-normal post-Holiday layoffs.

Seasonally-adjusted vs non-seasonally adjusted jobs, Jan 2019
All jobs (SA) +304,000
All jobs (Not SA) -2,981,000

Construction (SA) +52,000
Construction (Not SA) -245,000

Retail Trade (SA) +20,800
Retail Trade (Not SA) -557,000

Leisure/Hospitality (SA) +74,000
Leisure/Hospitality (Not SA) -356,000

But that also gets counteracted by the year-over-year raw jobs gains, which are at 2.77 million compared to January, the highest totals since the middle of 2015. So bottom line, things are still likely in good shape for the US jobs market as of January, and there's probably an argument to be made that the GOP's tax cuts helped some of this number.

But let's see what happens in the rest of 2019 as more people end up having to send checks to the IRS due to that Tax Scam, and the high of that one-time stimulus morphs into a hangover. We're already seeing projections from CBO and others that GDP growth will drop down to 2.0% this year and below it in 2020, and with the housing market already weakening in some spots, let's see if that slowdown signals a decline in job growth as well.

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