July was another stellar month for jobs
The U.S. economy added 255,000 jobs in July, building on the 292,000 jobs created in June. The unemployment rate remained unchanged at 4.9 percent.
There are 3 independent measures in a Jobs report:
1. Payrolls: Amazeballs
2. Revisions: Upward
3. Household survey: Even better than that.
— Justin Wolfers (@JustinWolfers) August 5, 2016
“It was a great report on virtually every dimension,” said Harry Holzer, public policy professor at Georgetown University and former chief economist of the U.S. Department of Labor, noting that the report was better than expected. “To me, this report is consistent with the gradual tightening of the labor market.”
Such stellar numbers come after a tremendously weak jobs report in May, in which the U.S. economy added a mere 24,000 jobs — largely the result of striking Verizon workers. Then in June, payrolls swelled, boosted by those same Verizon employees heading back to work. As we noted then, and as we’ll note now, never put too much stock in one month’s numbers.
Today’s report showed the U.S. economy added 18,000 more jobs than previously reported in May and June. With those revisions, jobs gains have averaged 190,000 a month over the past three months. At that rate, the U.S. economy would close the jobs gap, the number of jobs the economy needs to create in order to return to pre-recession employment levels, in a year. And, as economist Justin Wolfers noted, that’s 70 straight months of job growth.
IT'S A RECORD: 70 STRAIGHT MONTHS OF JOB GROWTH.
Previous longest streak: 48 months.
— Justin Wolfers (@JustinWolfers) August 5, 2016
“That’s despite Brexit, despite the weak global economy and despite uncertainty associated with the U.S. election,” said Mark Hamrick, senior economic analyst for Bankrate. “The recovery is sustained and sustainable.”
LABOR FORCE PARTICIPATION RATE
The labor force participation rate — defined by the Bureau of Labor Statistics as “the percentage of the population that is either employed or unemployed” — rose a tenth of a percent to 62.8 percent in July. The rate reached a historical low last year and has slowly inched up.
“We always knew that the participation rate was going to decline with the baby boomers retiring,” said Holzer. Yet, baby boomers can’t explain the entire drop. “About 2 percent of the nonelderly population dropped out,” said Holzer.
Those people have been slow to return to the labor force, often because they think there are no opportunities for them. But Holzer points out that as people gain confidence in their job prospects, we should see the labor force participation rate continue to rise.
“People who have been on the sidelines, [while] they are not flooding back in, they are trickling back in,” he said. “And that’s good.”
Average hourly earnings increased by 8 cents in July, following a 2-cent gain in June. Over the year, earnings have risen by 2.6 percent. This is encouraging to Hamrick, who noted that for a long time, average hourly earnings increased just 2 percent annually.
“Employers feel enough pressure that they are starting to raise wages,” said Holzer. As unemployment drops and competition for good workers increases, employers will raise wages to attract new hires.
“As long as the unemployment rate remains at 5 percent or below, we should continue to see further wage gains,” added Hamrick.
But he also noted that the lowest-paying and highest-paying sectors have seen most of the wage gains, meaning there are still plenty of people in the middle who aren’t getting a raise.
Just about the only bad number in the report was U-6. The Bureau of Labor Statistics’ measure of under and unemployment rose slightly from 9.6 percent in June to 9.7 percent in July. Economist Douglas Holtz-Eakin of the Republican American Action Forum thinks that’s due to a slight rise in the number of involuntary part-time workers.
Our Solman Scale U-7, which includes involuntary part-time workers and anyone who wants a job, no matter the last time they looked, in addition to the unemployed, also rose one-tenth of one percent to 11.8 percent. Why? An increase in both the number of people working part-time for economic reasons and the number of people who say they want a job.
But Holzer cautioned any jump to conclusions. “I wouldn’t worry too much about one-tenth of a percent,” he said.
THE FED AND INTEREST RATES
“In September, I think the chances are very low for a rate hike,” said Hamrick, noting that growth was low in the first half of the year and that the current levels of inflation aren’t going to give the Federal Reserve tremendous confidence.
Holzer is hesitant to guess what the Fed will do. “They’ve been delaying the increases because of other reasons — weakness in China, a strong dollar, Brexit,” he said. And “GDP was down for the last two quarters.”
But the report is consistent with what the Fed has been saying all along, Holzer said. The labor market is getting stronger, and July’s strong jobs report ought to move them a little closer to a rate increase.