June jobs report continues steady growth

The June jobs report is out early this month because of the July 4th holiday. There continues to be steady growth in the jobs numbers, with some downward revisions to earlier months and underlying weakness noted in continuing wage stagnation.

Steve Benen has the June jobs report. Jobs growth remains steady, unemployment drops:

As the calendar year reaches the halfway point, most economic projections point to steady job growth. As it turns out, that’s pretty much what we have.

The new report from Bureau of Labor Statistics shows the U.S. economy added 223,000 jobs in June, roughly in line with expectation. The overall unemployment rate inched lower to 5.3%, its lowest point since April 2008, more than seven years ago.

JuneJobs

The revisions, however, were less encouraging. April’s job totals were revised down, from 221,000 to 187,000, while May’s numbers were also lowered, dropping from 280,000 to 254,000. Combined, that’s a loss of 60,000. Also discouraging is the fact that the jobs report didn’t point to increased wage growth.

That said, there was also a big drop in long-term unemployment, which was more heartening. The overall takeaway is that this is a decent jobs report — not great, not bad.

The U.S. has added 2.9 million jobs over the last 12 months. June was the 57th consecutive month of positive job growth — the best stretch since 1939 — and the 64th consecutive month in which we’ve seen private-sector job growth, which is the longest on record.

Here’s another chart, this one showing monthly job losses/gains in just the private sector since the start of the Great Recession.

JunePrivate

Neil Irwin at the New York Times’ “the Upshot” explains The New Jobs Numbers Are Weaker Than They Look:

There is nothing in the June jobs numbers, released Thursday morning, that signals economic catastrophe. But the closer you look, the more reason there is to feel just a little glum.

The nation added 223,000 jobs last month, which is a perfectly good number. The unemployment rate fell to 5.3 percent, from 5.5 percent, the lowest since April 2008, when the Great Recession was a mere infant. If you look only at the big glaring headline numbers, in other words, these numbers are somewhere between good and great.

The disappointments come in the finer details. This report is the opposite of a dark cloud with a silver lining. It’s a billowy white cloud hiding some more ominous hints of where the economy stands, in particular reversing some hints of progress that had been evident in May numbers.

First, on that solid payrolls number. A few years ago, we all would have been thrilled with the 223,000 jobs added in June. But, when coupled with revisions that whacked 60,000 jobs off the April and May numbers, there is a modest downtrend evident in job growth in the last few months.

At the end of last year, for example, the six-month average for job creation reached 281,000, the highest since 2000. Now that six-month average has tumbled to 208,000. Looked at a different way, the nation added 3.23 million jobs in the 12 months ended in February, but that number has tumbled every month since then, to 2.94 million.

To be clear, 2.94 million jobs is nothing to sneeze at, and it was inevitable that as the nation got closer to full employment the rate of job creation would taper off, but it is surprising that it is happening while the labor force participation rate is still relatively low.

Which brings us to the next reason for disappointment in the latest numbers. For years now economy-watchers have been wondering when robust job creation would pull people who left the labor force during the recession back in.

The reverse happened in June. The labor force participation rate — the proportion of the population either working or looking for a job – tumbled three-tenths of a percentage point to 62.6 percent, which is the lowest in modern times. You have to go all the way back to 1977 to find a month when it was lower.

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The charitable way to view that number is that a large part of the contraction in the labor force during the recession and its aftermath was ultimately demographic: baby boomers retiring a bit earlier than they might have otherwise but retiring for good nonetheless. Still, barring a reversal, the shrinkage in the labor force implies that the United States’ economic potential is lower than it would be if there were millions of people ready to jump back into the work force if there were jobs on offer.

NOTE: I am not sure why Mr. Irwin does not address the growing body of economic research that suggests we have entered a “new economy” in which more and more jobs are being displaced by technological innovations, mechanization and computerization. See the MIT Technology Review, Will Advances in Technology Create a Jobless Future? | MIT (third in a series of articles about the effects of software and automation on the economy. You can read the other stories here and here), and a less pessimistic view from the International Monetary Fund, Toil and Technology — Finance & Development, March 2015.

The combination of slowing job growth and a lack of progress in growth of the labor force is no conundrum, but the third piece of not-so-good news out of the new report is.

Despite a falling unemployment rate, a rising numbers of jobs and fewer Americans out there apparently wanting to take those jobs, there was no progress toward rising wages. Average hourly earnings were unchanged at $24.95. What had been a 2.3 percent annual growth rate in hourly earnings in May fell to 2 percent in June.

You might expect the environment to be ripe for meaningful wage gains in 2015: The unemployment rate is inching closer to 5 percent, employers keep adding around three million jobs a year, and people aren’t coming back into the labor force to fill them. Anecdotal reports have major employers raising their entry-level wages, and state and local laws are increasing the minimum wage in many places.

But it isn’t coming through in the overall hourly earnings data, which is bouncing around at a rate of wage gains it has shown for years. Something has to give: Either employers will have to raise wages to coax more people into the labor force, creating a virtuous cycle of higher income growth and a larger economic pie, or job creation will have to slow way down to reflect the reality that the wages currently on offer aren’t enough to persuade more people to work.

What Irwin is not saying directly is that the slow but steady job growth is really a reflection of businesses not increasing wages, despite enjoying record profits. Part of this may be attributable to businesses being able to displace workers with new technologies so that the “old economy” incentives of increasing wages to attract additional workers to meet increased demand no longer apply in the “new economy.” This is something that few economists, and even fewer politicians, are addressing.

UPDATE: And then there is an obvious answer staring us right in the face, from Austan Goolsbee, former Chairman of the Council of Economic Advisors for President Obama: that “workforce participation rate” is a thing of the past and does not have the relevancy that people wish to assign it.

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