July jobs report is below expectations

Steve Benen has the July jobs report. American job growth falls short of expectations in July:

Ahead of this morning’s new jobs report, most projections said the U.S. economy added roughly 190,000 jobs in July. Apparently, we didn’t do quite that well.

The Bureau of Labor Statistics reported this morning that the economy added 157,000 jobs in July, while the unemployment rate inched lower, going from to 4% to 3.9%. It’s the second lowest monthly jobs total of the year.

That said, the revisions for the two previous months – May and June – looked very good, with a combined gain of 59,000 jobs as compared to previous BLS reports.

In terms of the larger context, this morning’s data points to 1.5 million jobs created so far in 2018, which is evidence of a healthy job market, and which is an improvement on the totals from the first seven months of 2016 and 2017. That said, this year’s tally is still short of the totals from the first seven months of 2014 and 2015.

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

The Washington Post points out that wage growth remains stagnant (so much for the GOP tax cut scam):

The U.S. economy has added jobs for 94 consecutive months, a record streak that shows no signs of waning despite President Trump’s escalating trade war. Many business leaders have warned the standoffs with China, the European Union and other major trading partners could cause layoffs if tariffs stay in place for an extended period of time.

Hiring remained solid in most industries in July. Blue-collar jobs have grown sharply, with manufacturing adding 327,000 positions in the past year and construction adding 308,000. Transportation, mining and financial services did not hire much in July. Retail was also sluggish with just 7,000 job gains.

Economists will be watching to see if these industries rebound later in the year. But Americans are optimistic about the economy, largely because of the many “we’re hiring” signs seen across the nation.

The only red flag in the U.S. labor market remained wages. Despite many company executives complaining they cannot find workers to fill open positions, wage growth remains sluggish. Typically businesses raise wages when it’s difficult to find the talent they want, but annual wage growth remained at a tepid 2.7 percent, the Labor Department said. Wage growth has been stuck around that level for two years.

Unemployment has fallen this year to its lowest level since 2000, and many economists predict unemployment will fall even further this year. If the jobless rate drops to 3.7 percent or below, it would be the lowest unemployment rate since 1969. African-American and Hispanic unemployment rates are hovering around the lowest rates since the Labor Department began recording those statistics in the early 1970s.

The last time the U.S. economy had such low unemployment in the late 1990s, wage growth was substantially higher. The current wage gains are not enough to cover  the rising costs of food and housing for many Americans.

One theory for why wage growth is not picking up more is that many Americans gave up looking for jobs in the aftermath of the Great Recession, but people are now looking again as they see the strong job market. The employment-to-population ratio, a measure of how many adult Americans are working, is now 60.5 percent, up from 60.2 percent a year ago, and a sign that more people are re-entering the labor force.

Jared Bernstein, chief economist and economic adviser to Vice President Joe Biden and a Senior Fellow at the Center on Budget and Policy Priorities since 2011, adds “Wage growth, however, remains a sore spot and despite further tightening, did not accelerate.” July’s Jobs Report: Solid jobs but little wage acceleration:

Wage Dive: There’s been a lot of wage commentary lately, which I’d like to take a quick stab at sorting out here, with more to come in a longer paper out soon.

For now, a quick Q&A:

Q: Is there a wage problem in the current labor market?

A: There is, as real wages for middle-wage workers, as in today’s data, are flat (growing at about the same rate as inflation), meaning the only way working families can grow their incomes is working more hours.

Q: Is that a function of slow nominal wage growth or faster inflation?

A: It’s really about faster inflation, most recently, as the figures below reveal [deleted]. They plot the yearly growth rate of the mid-level wage against inflation (I’ve forecasted the July inflation value as it’s not out yet). The difference between the wage and the inflation lines represent real growth. As you see in this figure for an important sector for mid-wage workers–health care and education– inflation grew from very low levels and has caught up with pay rates in the sector.

At the same time, mid-level wage growth before inflation, as described above, has been slower in this recovery than in previous ones, especially at such low unemployment.

Q: What factors explain the faster prices and slower nominal wage growth?

A: Higher energy costs have been boosting prices (core inflation, which takes out energy and food, has been much tamer) of late, and these could trail off in coming months as oil supplies are up. The tariffs, especially if they escalate, could push prices up a bit, but topline inflation could slow in coming months, leading to faster real gains, especially if falling unemployment pushes up nominal wage growth.

Q: What other constraints are in play?

A: Economists point out that productivity growth puts a cap on real wage growth and there’s no question that a) the two variables are linked, and b) slow productivity is a constraint on current wage growth. But slow productivity growth certainly does not explain flat, mid-level real wages in such a tight job market. For example, business profits remain strong, firms are spending billions on share buybacks to boost their stock prices. If workers had stronger bargaining power, they could push for more profits to flow into paychecks.

And, of course, over the longer term, productivity has risen much faster than median compensation (see figure), again, a function of long-term, structural factors inducing weaker bargaining power, including outsourcing of jobs, diminished union power, long periods of slack markets, eroding labor standards, and, especially in the Trump era, a politics that is incessantly hostile to workers and friendly to capital.

Q: Will lower unemployment give workers more clout?

A: It likely will. Thus, a potential, positive near-term scenario is lower unemployment pushing up nominal pay. Should that occur as energy prices come down, we’ll see real gains in coming months. But there are enough links in that chain that it’s no slam dunk, even in the near term. As just noted, the fact that worker power has been in long-term decline while concentrated employer power is ascendant remains a critical determinant of the living standards of working families.

This is unlikely to change in the new Gilded Age until there is a political backlash against the corporate robber barons as there was with the Progressive Era ushered in by Teddy Roosevelt at the turn of the last century.