Quick Thoughts – Employment Trends
We don’t like reporting the news, but will happily follow on with a perspective that we think may be getting lost or ignored – in this case, the non-farm payroll numbers released this morning
The headline number was unquestionably positive, with total non-farm payrolls increasing by 288,000 (Exhibit 1). The total employed population (a different survey and our preferred metric) expanded smartly as well, +407,000.
Having said that, there were a couple of oddly disturbing items in the data, specifically the changes in full-time and part-time employees (Exhibit 2):
- Full-time employees declined by over a half million (523,000);
- Part-time employees increased by 799,000;
- We are fond of saying that one data point does not a trend make, but it is difficult for us to view the underlying dynamics (full/part-time) as anything other than casting a negative pall over what was otherwise a solid report.
- Out of curiosity, we wanted to examine whether or not such a large increase in part-time employees held some predictive value for the future trend in non-farm payrolls (i.e. was this a precursor to more robust hiring, or a sign of future weakness). We looked at the prior nine largest increases in part-time hiring and took the average change for each of the six months prior and post the month in question (Exhibit 3).
- The results were interesting – the six months prior to the spike in part-time employment saw non-farm payrolls increase, cumulative and on average, 249,000, while the next six months saw an average cumulative decline of 74,000. Certainly not dispositive of the issue, but interesting nonetheless, as we could have woven either a positive (companies are gearing up for full-time hiring by hiring part-time) or negative (increase in part-time is a precursor to layoffs) narrative around these numbers but preferred to provide at least some analytical rigor around the data.
Finally, growth in average hourly earnings continues to underwhelm, right around the +2.0% level that we have seen for most of the recovery. We have discussed this topic before, and continue to believe that the recovery in consumer spending is hindered by lackluster employment and wage growth, with issues such as job lock and skills mismatches as root causes. Importantly, real hourly earnings declined on a year over year basis in June for the first time since April of last year – again, just one data point, but it is a difficult one to cast in a positive light for the consumer sectors, particularly consumer discretionary (we say, as the market trudges higher).