The net one-month change in nonfarm payrolls, as reported by the Establishment Survey, was 517,000. The Household Survey reported an additional 894,000 jobs. Both releases featured their own set of statistical assumptions that should be considered when reviewing the data.
Source: Bureau of Labor Statistics.
When it comes to payroll updates, there are three data sets that many economists and market participants pay close attention to. The Bureau of Labor Statistics releases two surveys with payroll data, one set comes from the Current Employment Statistics (CES) and one comes from the Current Population Survey (CPS). The CES is commonly referred to as the Establishment Survey and the CPS is often referred to as the Household Survey. The CES provides information on employment, hours, and earnings of employees on nonfarm payrolls. Each month the CES surveys about 122,000 businesses and government agencies, representing approximately 666,000 individual worksites. The CPS includes information on the labor force, employment, and unemployment. This is a sample survey of about 60,000 eligible households conducted by the U.S. Census Bureau for the U.S. Bureau of Labor Statistics. The third set of payroll data comes from the ADP National Employment Report. This provides payroll transaction data – when a person is paid and how much – from more than half a million companies.
All three reports are subject to revisions and can be useful in their own ways, but less insightful at times. Specifically, the CES seasonally adjusts the data to smooth out periods where normal fluctuations in employment occur overtime, such as the Fall and Spring when schools open and close or in the holiday season when employers ramp up hiring in retail. In most cases, this provides a better view into what is happening at the core of employment trends. However, in periods of higher employment volatility, the data could move outside of the usual 90-percent confidence interval and be subject to larger revisions. Given what has been said by large retailers over the last two quarters regarding consumer demand and the need for cost-cutting, we believe it is unlikely they ramped up hiring like in prior years. Therefore, dampening the effect of this slowdown with the usual seasonal adjustments could be misleading. Despite seasonal adjustments and revisions, the larger takeaway is the decline in payrolls in 2022 compared to 2021 and sequential decelerations from July through December 2022.
Source: Macrobond.
Within the CES, there are annual benchmark revisions that adjust for population changes captured by the U.S. Census Bureau. The adjustments increased the estimated size of the civilian noninstitutional population in December by 954,000, the civilian labor force by 871,000, and employment by 810,000. The majority of the overall population level change was due to the increase in net international migration in this year’s adjustment, which follows reduced international migration due to the pandemic. This adjustment effectively assumes that due to an increase in population there must be an increase in the labor force and employment. Without the population control factor, employment was up 84,000 month-over-month as opposed to the widely reported 894,000 (810,000 from population control factor plus 84,000 without population control factor). Pulling the larger takeaway back into view, the Household Survey payrolls slowed in 2022 versus 2021, with four months coming in negative. Additionally, the number of part-time workers has increased by more than full-time workers, which is typically not a sign of a healthy economy. In January, 606,000 jobs of the 894,000 reported were attributed to part-time workers, following 679,000 of the 717,000 reported in December. Full-time workers came in much lower at 278,000 and -1,000, in January and December, respectively. The tally on full-time workers is now in-line with the same total reported in March 2022.
Source: Bureau of Labor Statistics.
Source: Macrobond.
ADP Payrolls reported a 106,000 net job gain in January. This was led by a 95,000 increase in Leisure and Hospitality. This outsized move at the industry level highlights a trend that we have seen over the last year and a half. Industries most impacted by the pandemic have added more jobs, which is essentially just recouping jobs lost during the pandemic. Meanwhile, Trade, Transportation, and Utilities shed 41,000 jobs and Construction declined by 24,000.
Source: ADP, Inc.
Given the volatility, uncertainty, and lagged nature of labor data, it is important to recognize the underlying economic and market trends. That is to say, economists and market participants should not rely solely on payroll reports as a guide to where the economy is at or going.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Economic Analyst
Boyd Watterson Asset Management, LLC
