B LS Employment Situation Release for January shows that strong new job creation trends carried into 2015. The first month of the new year saw 257,000 net new jobs, exceeding expectations. Perhaps even more encouraging are the upward revisions to November and December job totals.
Annual Statistical Adjustments Affect Trends from Prior Year
November increased 70,000 to 423,000 and December rose 77,000 to 353,000. Employment growth this robust was last seen in the late 1990s. Other good news can be found in the January report. Most of the new jobs are full-time. Progress in reducing the ranks of the long-term unemployed and those marginally attached to the workforce, while slow, is significant and accelerating. The U.S. job market seems to be finally leaving the Great Recession behind.
Statistical True-Up Obscures Trends
At the start of each year, the BLS validates and adjusts the baselines used for its core surveys of businesses (Establishment) and workers (Household). The Establishment survey is brought into agreement with unemployment tax records from payrolls, while the Household survey is aligned with the latest population estimates from the U.S. Census. These baseline adjustments can introduce small discontinuities into employment statistics. For example, despite rousing job creation numbers, the unemployment rate in January increased a tenth of a percent to 5.7%. This unexpected uptick was caused by an upward revision of the working-age population by almost 700,000. Similarly, the 0.2% upward movement of the participation rate should be treated skeptically until additional months after the reset can be seen.
Lots of press is focused on the absence of upward wage pressure despite the robust pace of hiring. The unemployment rate for workers without a high school diploma fell 2.6% in the past 12 months to 8.5%, while the unemployment rate for workers with a bachelor’s degree has fallen to 2.8%. Undue importance was attached to an upward tick in November, only to be dashed by the December report. The same overeagerness appears to be attaching to the $0.12 rise in average hourly wage in the January 2015 report. Wage increases and contingent labor bill rates over the past several years have been remarkable in their flatness. Only time will tell if the January average wage increase signals the long awaited tightening in the labor supply.
New Jobs by Industry Sector
Diverse industries participated in the continuing robust job creation. Retail, food service, construction and manufacturing were all strong contributors. Financial services and healthcare likewise added many new jobs. The public sector reversed its recent trajectory and showed a net decline in employment. Given the decline in energy prices, it is no surprise that mining and logging, which includes oil and gas, showed a modest decrease in jobs.
Temporary Agency Employment – Statistical Adjustment Brings Big Changes
Until January and the new employment baselines, the story of temporary employment was upbeat and repetitive: new record employment levels and an expanding share of the nonfarm job market. The revised temporary employment numbers reflecting the true-up to unemployment tax records show fairly dramatic changes:
Temp agency employment is still increasing year over year, but not at the blistering pace previously reported. The employment levels derived from the temp agency participants in the Establishment survey clearly overstated job numbers. Presumably, the model will be adjusted based on these changes.
The January new job numbers, along with upward revision to prior months and other encouraging features in the data, show a robust U.S. job market. The puzzling aspect is the lack of upward wage pressure. IQNdex values show that contingent labor bill rates, if anything, are even more resistant to increase. Vigorous job creation seems to be drawing sidelined workers back into the labor market, delaying the point at which demand outstrips supply. The extremely low unemployment for more educated workers suggests that point is approaching, at least for some skill categories.
Despite the downward revisions to temp agency employment numbers, industry’s increasing reliance on contingent labor remains an indisputable long-term feature of the post-recession job market. It is safe to predict that the upward trend in temp job creation will resume following the January adjustment.