The November 2019 Jobs Report – Can We Trust It?

On December 6, 2019, the Bureau of Labor Statistics (BLS) released a glowing jobs report, stating the US added 266,000 new jobs in November.* These numbers impress, as the forecast called for 187,000 new jobs. The BLS also made positive revisions to the September and October jobs numbers, adding 13,000 and 28,000 respectively.   The report marks 11 consecutive years of economic expansion and the unemployment rate dropping to a fifty-year low of 3.5%.  (In Ames, Iowa, the unemployment rate is just 1.3%!)

But with impressive numbers, comes skepticism.  Can these numbers be real in a political environment rich in falsehoods and half-truths?   If the economy is so strong why is wage growth stagnant?  A look under the hood helps elucidate some of these questions.

What are the numbers behind the headlines in the most recent jobs report?

The BLS breaks down the labor numbers by multiple sectors.  Right now, US economic strength lies in the service sector, with manufacturing and retail sectors weak.  

In the manufacturing sector, returning GM-workers bolstered numbers. When adjusting for the return of these striking workers, however, the sector actually lost jobs.   In contrast to manufacturing, the service sector held strong, with the major gains in healthcare, social assistance, leisure and hospitality.  Aging baby boomers drive healthcare jobs and food services spurred the leisure and hospitality group.  Many are hopeful that a phase one trade deal with China is on the horizon. If so, a deal could help temper any impacts on the services sector.

In retail, job numbers remain stagnant since last month, but have fallen more than 30,000 over the last year.  Retail hiring peaked in January 2017.  The continuing transition from in-store to online shopping holds down overall employment.   Meanwhile, Amazon continues to replace warehouse workers with robots, where each robot replaces 24 workers. 

The jobs numbers have a lot of moving parts – striking workers, census workers, and benchmark revisions.  The chart below adjusts for them and shows jobs growth at 168,000.

This adjustment shows a decline in job growth in recent years.  Heidi Shierholz, the Former Chief Economist at the US Department of Labor, considers this a very solid number despite the downward movement.

If unemployment is so low why are wages not increasing?

Average wages rose 3.1% over last year. With such low unemployment, economists traditionally predict higher wage increases than we’ve been seeing.

Managerial wages stay static, while entry level wages are growing.  Diane Swonk, an economist who advises the Fed, calls the lack of upward pressure on managerial wages “puzzling”.  

Economist Betsy Stevenson (Former Member of the President’s Council of Economic Advisers and Chief Economist at Labor) is troubled by the pace of wage growth.  

A worker’s share of GDP (compared to profits) doesn’t want to budge.  

Wage growth numbers are troubling. The rising wage growth from late 2017 through late 2018 has ended.  Since January 2019, wage growth has been on the decline. 

 One reason wage growth is flailing is the concentration of hiring in low-paying industries. Other factors are: (1) the US-China trade war continues to hurt business confidence, and (2) the lagging manufacturing sector also brings down the average wage. Middle income jobs remain hard to find.   

 Are the Labor Department’s numbers reliable?

 In September 2019, President Trump modified an official National Oceanic and Atmospheric Administration map with a sharpie then presented the map as fact.   

The Bureau of Labor Statistics is responsible for producing the job numbers.  It is an independent statistical agency with a political appointee as commissioner.  (Currently, no permanent commissioner has been appointed and the agency is run by a non-political acting head.) But even apolitical agencies may be subject to political influence.  Reporter Ben Casselman of the New York Times, however, asserts that if the dedicated civil servants of the Bureau of Labor Statistics did fear interference, the public would be seeing “tons of stories with anonymous gripes from BLS economists.” 

 Another point in favor of their reliability: numerous private data sources monitor data related to the job market.  If the government published numbers significantly different than these private data collectors, alarm bells would go off.  To date, these various data sources appear to be telling the same story. 

The Bureau of Labor Statistics (“BLS”) does suffer from its own employment woes, as budget cuts made recruiting and retaining talented employees difficult.  BLS struggles to accurately measure the gig economy, for example.  The jobs report may be incomplete, but it is not likely altered by political forces.

The gaping hole in the jobs report is workers in the gig economy (short-term contracts and freelance vs. permanent employment). The last numbers released by BLS on gig workers was in 2017, showing 55 million US gig workers.  A more recent (2018) Gallup poll puts the number at 57 million – that is more 1/3 of all US workers.  These numbers include people who freelance on top of their regular job and people who spend 100% of their work time as gig workers.  The BLS does not break down the numbers further.  With so many people employed as independent workers, how can the jobs report give us a complete picture of the economy?     

To give an example, Wal-Mart was the largest private employer globally as of 2017, with a workforce of over 2 million people.  Uber self-reports they have 3 million drivers using their app.  Uber counts these drivers as contract workers, not employees.  If they were employees, they would be considered the largest employer in the world.  (Link to full research paper - “Human Capital Risks in a Changing World.”)  The BLS, though, is not tracking these workers in their statistics.  

Krystal Hicks, founder of JOBTALK, a recruiting company, sees the effects these contract workers have on workplace hiring practices.  Now more than ever, if a company loses people in key roles, they don’t take the time to train new employees.  Instead, they are “starting to use these plug-and-play resources with the exact experience they need rather than waiting to recruit and hire a full-time employee.”  

The question remains – are these types of practices keeping wages depressed? Or are stories like these merely anecdotal? Drawing firm conclusions about the overall state of the job market will be difficult without a strong set of data compiled by the BLS or other groups.

Overall, the labor market remains strong.  The stock market is hitting new records.  When will the ball drop on this bull market?  Only time will tell.

If you have any concerns about how the labor market, or economy in general, may affect your financial plan and investments, please reach out.

Amanda Vaught, amandavaught@propel-fa.com

 *These numbers are only estimates, and the government will revise these numbers two more times.  The October estimate will be revised one more time before considered final.