Below we provide a two-pronged breakdown of today’s Labor Market Numbers: Analysis of the Current Population Survey (Household Survey) which drives the Unemployment Rate & the Establishment Survey (CES) which drives the NFP Number:
Total Employed & Employment By Age: Total Employment as measured by the household survey was essentially flat in January, up 17K sequentially with y/y growth decelerating 60bps sequentially to +1.2%.
The hallmark of both the downturn & the recovery was the contrast between the extreme job loss among younger cohorts and the relative employment stability among older workers (employment for 55-64 yr. olds never went negative through the great recession).
Notably, Employment growth across the 20-45 age group has begun to improve in recent quarters and is showing continued stability to start the year with 25-34 year old employment continuing to accelerate. Demand levered to this age demographic continues to hold some upside should the current trend continue.
For example, correlations between birth trends and employment growth for 20-35 year old women are strong across durations. Our healthcare team has been positive on MD (neonatology) as a way to find exposure to improving employment and a recovery in births – this trend has already begun to manifest as evidenced by accelerating SS volume growth for MD in 4Q12
(source: Hedgeye Healthcare)
Civilian Noninstitutional Population: Each January the Census Bureau's estimates of the civilian noninstitutional population ages 16 and over are revised back to the base period for intercensal estimation, currently April 2010. The annual benchmark adjustment is applied without any smoothing or rearward revision and shows up as single bolus in the January release.
The January 2013 adjustment (+138K) was largely benign from a historical perspective. The takeaway, inclusive of the benchmark adjustment, is that growth in the Civilian Noninstitutional Population decelerated 60 bps sequentially to 1.0% y/y in January. Note that slower CNP growth is a tailwind to Unemployment Rate Improvement (all else equal), and vice versa.
Unemployment Rate: The Unemployment rate increased from 7.8% to 7.9% m/m. The unemployment rate is a function of the growth in the Civilian Noninstitutional Population (CNP), growth in the employed, and the labor force participation rate/growth in unemployed.
The principal driver of the increase in Unemployment this month was the delta between the change in the employed and the change in the unemployed.
Total Employed increased 17K sequentially while the Total Unemployed increased 126K sequentially – this -109K delta drove both the labor force participation rate and the unemployment higher despite the favorable impact from slowing growth in the CNP.
Part-time & Temp Employment: Part-time employment (household survey) decreased for a 3rd straight month and posted its first negative growth month since 12/11. Temp employment growth (establishment survey) followed the same trajectory, decelerating 160bps sequentially.
To the extent growth in full-time employment can displace growth in part/temp employment and business can gain some further fiscal policy clarity into mid-year (post Fiscal cliff, debt ceiling, budget debates) sustainable real consumption growth stands to benefit.
Total NFP Gains & Growth: Total Nonfarm Payrolls increased 157K in January vs. consensus at 165K. More notable than the marginal 9K miss in the current month were the positive revisions to the 2012 monthly estimates. The cumulative 12M revision was +336K with 150K occurring in 4Q12 as November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000.
Inclusive of the strength of the revision and the improvement in the Birth-death adjusted NSA payroll numbers (below), we’d view the January print as benign to modestly positive.
Birth/Death Adjustment & NSA Payrolls: In order to get a true sense of the underlying strength of the monthly jobs reports, we have to net out the BLS estimates of business openings and closures – more commonly known as the Birth-Death Adjustment.
Since the MoM BDA is non-seasonally adjusted, it’s important we use the MoM NSA payrolls data. A YoY calculation of that figure is ultimately the best proxy for the rate of “actual” job growth.
On this metric, growth in non-farm payrolls accelerated MoM in JAN to 138K from -33K prior. That’s above recent monthly trends and agrees with the ongoing, albeit modest, improvement in the claims data
State & Local Government employment: After a four year run of negative growth, state & local employment is now approaching the zero line and likely to go positive in 2013. State & local government gross investment & consumption expenditures went positive (positive contribution to GDP) for the first time in 11 quarters in 3Q12 and, collectively, states expect continued tax revenue growth in 2013 with total General fund revenues expected to surpass the 2008 peak in nominal terms.
Christian B. Drake